Schedule B Donor Disclosures: Onward for SCOTUS Ruling

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Many nonprofit leaders and tax practitioners have eagerly awaited news of whether the United States Supreme Court would consider a legal challenge to California’s requirement that 501(c)(3) public charities annually submit a list of their major donors to the California Attorney General, as contained in their IRS Form 990 Schedule B return. On January 8, 2021, the Supreme Court granted a petition for writ of certiorari in Thomas More Law Society v. Becerra, consolidating that case with Americans for Prosperity Foundation v. Becerra. In these troubled times of increasing polarization, protests, and “cancel culture” tactics, these cases represent extremely important constitutional freedom issues that will substantially affect public charity operations and associated privacy rights of their donors.

Start with the IRS – Schedule B Major Donor Disclosure

As background, IRS regulations require most 501(c)(3) public charities to file an annual information return, using IRS Form 990, 990EZ, or 990-N. (Houses of worship are a notable exception.) A reporting public charity must make its last three years of IRS Form 990 returns available to anyone who makes a request. They are otherwise publicly available through www.guidestar.org and the IRS’ own website. Notably, Schedule B of the IRS Form 990 requires reporting organizations to disclose the names, addresses, and donation amounts of individuals who contributed over $5,000 in a given year or accounted for 2% of the organization’s annual charitable receipts. Given the confidential nature of donor information, Schedule B filings are expressly exempt from public disclosure requirements, and they are protected against disclosure by federal law - including (in most cases) disclosure to state regulators. Schedule B information thus may be redacted for public disclosure purposes.

California (and Other States) Want IRS Schedule B Donor Information Too

In recent years, the Attorney General of California added a requirement for disclosure of Schedule B major donor information as part of its charitable solicitation regulation related to fundraising. Other states that have added this requirement so far include New York and, quite recently, New Mexico. The consequences are dire for non-complying charities in California - a temporary or even permanent prohibition on fundraising activities involving California donors, plus revocation of their tax-exempt status for California tax reporting purposes.

The IRS requirement contrasts sharply with the state counterpart. For example, the IRS’ purpose in requiring Schedule B falls squarely within its taxing body role, such as to monitor donors’ tax compliance regarding deductible contributions and to prevent improper donor control of tax-exempt organizations. The California Attorney General has no such role whatsoever; rather, its government function in this arena is protecting consumers against unscrupulous fundraising activities and, in turn, making sure that public charities act responsibly. The California AG’s office can fulfill this dual function through other investigative measures, as it has long done, without this relatively new insistence on unredacted Schedule B donor names.

In addition, the IRS’s requirement is undergirded by severe criminal and civil penalties for anyone who violates the Schedule B confidentiality protections. Not so for the California version. Disturbingly, as the litigants in the pending cases have shown, it is all too easy for hackers and others to gain unauthorized access to this confidential donor information. Indeed, California government officials have apparently treated donor data cavalierly and have failed to adequately safeguard it, with many documented failures and data breaches. 

Sufficient Harm Threatened by Mandatory Donor Disclosure, to Outweigh Government Interest?

Throughout their litigation journeys, Americans for Prosperity Foundation and The Thomas More Law Center have vigorously argued that California’s disclosure requirement violates their constitutional First Amendment rights to freedom of speech and association, particularly with respect to donor privacy interests. If donors have to fear exposure, retaliation, or other reprisal, they will be inhibited from expressing their support for certain causes. The dissenting judges in the underlying Americans for Prosperity Foundation Ninth Circuit denial of an en banc rehearing (i.e., full Ninth Circuit hearing after a three-judge ruling) recognized these substantial dangers and harm involved with such mandatory donor disclosures: “controversial groups often face threats, public hostility, and economic reprisals if the government compels the organizations to disclose its members and contributor lists.”[1] These dangers have been recognized in cases like the Supreme Court’s NAACP v. Alabama ex rel. Patterson decision in 1958, in which such compelled disclosures were held to violate First Amendment rights.[2]

As the dissenting judges found in the Americans for Prosperity Foundation rehearing denial, the “robust protection of First Amendment free association rights was desperately needed here.” Further, as the trial court determined in its evidentiary findings, people publicly affiliated with Americans for Prosperity often faced harassment, hostility, and violence. Threats included messages and packages sent to the donors and the organization itself, the home addresses of workers and their children’s schools posted online as intimidation measures, and death threats. Threats of assassination and physical assault were posted online. In addition, an event in Michigan turned violent when several hundred protestors surrounded Americans for Prosperity’s tent with box cutters and knives, caused the tent to collapse, and trapped supporters underneath. Protestors have also called for economic boycotts of Americans for Prosperity donors’ businesses. 

Donor Privacy Versus Government Interests

Given the First Amendment protections at stake, a stringent constitutional test has been found applicable here. More specifically, the California Attorney General must demonstrate that: (1) a “compelling interest” exists in the information sought; (2) a “substantial relationship” exists between the information sought and the compelling state interest; and (3) the state regulation is “narrowly drawn to present the supposed evil.” The public charities argue that California does not hold a significant enough government interest warranting such an intrusion into donors’ privacy. Rather, whatever interest California may have is only in terms in general law enforcement and convenience, which falls far short of this blanket state government demand for otherwise entirely confidential information.

The privacy interests, free speech and associational constitutional protections, and related risks of injury all stand in significant tension with California’s asserted government interest in confidential donor information. The legal questions and stakes for public charities and their donors are thus enormous.

Constitutional or Unconstitutional: What Next?

How will the Supreme Court rule? Many commentators expect California’s mandatory donor disclosure requirement to be struck down as unconstitutional. Other states’ identical requirements thus should similarly fall, and still other states should be chastened against imposing such donor disclosure requirements in connection with fundraising regulatory compliance. A close court majority is probable, and with spirited dissents regardless of the outcome. A decision may be issued by June 2021, or during the Court’s subsequent term at the latest.

What will this significant ruling mean for public charities? If the California disclosure requirement is upheld as constitutional, expect more states to follow suit. Some donors’ privacy concerns may increase, especially for nonprofits that are involved with controversial positions or causes. At least while these cases are pending, public charities and their donors may wish to consider using donor-advised funds as a charitable giving tool, which allows for anonymous contributions. Public charities should be extremely discerning in determining whether their activities trigger state charitable solicitation registration requirements, based on their specific fundraising activities, donations, and programs physically within states at issue. For more information about such requirements, please see our blog article on Fundraising Across State Lines.


[1] For additional background on the Americans for Prosperity Foundation litigation, please see our blog article here.

[2] As the Court in NAACP v. Alabama observed, “It is beyond debate that freedom to engage in association for the advancement of beliefs and ideas is an inseparable aspect of the "liberty" assured by the Due Process Clause of the Fourteenth Amendment, which embraces freedom of speech.”