Schedule B Disclosures: Donor Victory Against California AG and New Congressional Bill Providing Donor Protection
Must nonprofits disclose their Form 990 “Schedule B” list of major donors? In round three of Americans for Prosperity Foundation’s (AFP) litigation against the California Attorney General, AFP’s answer was a resounding no! On April 21, 2016, federal trial court Judge Manuel Real ruled that such requirement “chills the exercise of [AFP’s] donors’ First Amendment freedoms to speak anonymously and to engage in expressive association.” And just a week later in our nation’s capital, the House Ways and Means Committee approved H.R.5053, a bill designed to similarly relieve nonprofits of their corresponding IRS reporting obligation. This is great news for AFP and other nonprofits alike, as donor privacy and related First Amendment rights are increasingly being challenged.
Background - Schedule Bs, the IRS, and State AGs
In Schedule B, a part of the IRS Form 990, nonprofits must list donors’ names, addresses, and amounts given, for all donors who contribute more than $5000 or 2 percent of all donations (whichever is higher) in a tax year. This mandatory reporting has long been a mainstay within the IRS context, as a measure for nonprofit accountability and particularly to guard against improper donor control in violation of well established “public benefit” requirements. While Form 990s are subject to public disclosure, the IRS is legally obligated to keep Schedule B information confidential. Both federal civil and criminal sanctions are available for improper disclosure, and nonprofits may legally redact such information in their publicly available Form 990s.
Enter California Attorney General Kamala Harris. Until 2013, and consistent with most other states, the California AG’s office had never required Schedule B donor information as part of state filings related to charitable solicitation activity. But in 2013, the California AG changed its policy and began demanding copies of Schedule B, even though no confidentiality protections exist similar to those applicable to the IRS under federal law. Instead, under this new policy, nonprofits that fail to comply with such disclosure requirements are effectively deprived of the ability to raise money in California.