The Trump Administration is back on track with limiting tax-exempt organizations’ disclosure of major donor information, through Form 990’s Schedule B. On September 6, 2019, the U.S. Treasury Department issued a notice in response to the recent judicial invalidation of IRS Revenue Procedure 2018-38, thereby commencing a “notice and comment” period for reinstating such requirements through new government regulations. Once that time period ends, the new donor disclosure restrictions will take effect.
On July 30, 2019, a Montana federal district court judge invalidated the IRS’s Revenue Procedure 2018-38, which had eliminated IRS Form 990 Schedule B disclosure requirements for Section 501(c)(4) and other tax-exempt entities (but left intact such requirements for Section 501(c)(3) and Section 527 organizations). The court’s Bullock v. IRS ruling rested entirely on procedural grounds, holding that the U.S. Treasury Department had not correctly proceeded through the deliberative notice-and-comment administrative process as should be applicable to such a significant legal change. For additional background on that decision, please see our prior blog article.
Rather than appealing this court ruling, the Treasury Department took the quicker route by issuing a “Notice of Proposed Rulemaking.” Interested persons and organizations may submit “comments” electronically or via mail, which will then be published for public availability. The Notice specifically references the Bullock ruling, provides extensive additional tax background information, and provides other clarifying reporting information for Section 527 political action committees.
In proposing more restricted Schedule B donor disclosure requirements, the Notice highlights confidentiality concerns surrounding the collection of substantial contributors’ names and addresses, resulting in increased compliance costs and IRS expenses if such information is collected. According to the Notice, and consistent with anecdotal reports, incidents of inadvertent government disclosure of Form 990 donor information has in fact occurred. Significantly, affected tax-exempt organizations under the Notice will still be required to report contribution amounts and to maintain contributor information themselves, but provide it to the IRS only upon its request. According to the Notice, such measures are “sufficient for the efficient administration of the Code.” The Notice also reflects that “Congress has not tasked the IRS with enforcement of campaign finance laws,” and therefore such concerns are not properly addressed by the IRS.
The prescribed public comment time period is 90 days from the Notice’s September 6, 2019 issuance date. Subject to any modifications resulting from the comment process, the final regulations will apply to all tax returns filed after September 6, 2019. In addition, per accompanying IRS Notice 2019-47, penalty relief is available for affected tax-exempt organizations that do not report contributors’ names and addresses on annual returns for tax years ending on or after Dec. 31, 2018, but on or before July 30, 2019. And so will end the Bullock reversal of Rev. 2018-38, not with all living happily ever after, but likely with significant satisfaction for many.