Mandatory Donor Disclosures: Less Than Appealing
What do the California Attorney General, charitable donors, and the First Amendment have in common? They have been tangled up in litigation over California’s new mandatory disclosures of confidential donor identification information. On November 9, 2015, the U.S. Supreme Court declined to address whether compelled disclosure of donor information – by itself – constitutes a First Amendment injury compelling enough to foreclose such governmental intrusion, in Center for Competitive Politics v. Harris. The case of Americans for Prosperity Foundation v. Harris now waits in the wings, on the related question of whether such compelled disclosure violates the First Amendment, if shown to actually chill speech and result in harassment of donors. These cases are important for both nonprofits engaged in charitable solicitations and our country more broadly, given the serious free speech and freedom of association constitutional rights at stake.
From AG Annual Reports to the Courtroom
Both cases began when the organizations challenged the California Attorney General (AG)’s demand to submit their IRS Form 990 Schedule B as part of their annual AG reports, in connection with their charitable solicitation activity in California. The AG’s demand resulted from a 2013 change in its policy; consistent with most other states, the California AG’s office had never before required such disclosures. Form 990’s Schedule B requires nonprofits to list major donors’ names, addresses, and amounts given. The IRS collects this information but is legally required to keep it confidential. Both civil and criminal sanctions are available for improper disclosure of such information, and nonprofits may legally redact such information in their publicly available Form 990s.
In contrast, California law provides no such protections against donor disclosure. Instead, under California law, nonprofits that fail to comply with such disclosure requirements face serious consequences: their state income tax exemption is invalidated; late fees are imposed, for which directors and officers are personally liable; and the noncompliant organizations may not engage in fundraising within California. The incentive for nonprofits to disclose otherwise confidential donor information is thus quite compelling.