Schedule B Donor Disclosures: Supreme Court Sides with Charities

Print Friendly, PDF & Email

On July 1, 2021, the Supreme Court ruled in Americans for Prosperity Foundation v. Bonta (AFPF v. Bonta) that the California Attorney General may no longer collect Schedule B donor information from charities registered to solicit in the state.[1] In a 6-3 decision, the Supreme Court held that “California’s blanket demand that all charities disclose Schedule Bs to the Attorney General is facially unconstitutional.”[2] Writing the majority opinion for the Court, Chief Justice Roberts reasoned that California’s disclosure requirement violated donors’ freedom of association under the First Amendment and was not narrowly tailored to the important government interest of investigating charitable misconduct.[3] This case represents a resounding victory to charities, and it will undoubtedly shape donor disclosure laws in other states, particularly within the context of charitable solicitation registration.

Background: Schedule B and AFPF v. Bonta

AFPF v. Bonta centers around Schedule B of IRS Form 990. Charities that intend to regularly solicit donations from residents in California are required to annually file a registration with the California Attorney General’s Office. The filing must include a copy of the organization’s IRS Form 990, 990-EZ, or 990-PF, with all applicable schedules.

On Schedule B of the IRS Form 990, reporting organizations disclose the names and addresses of donors who contributed over certain thresholds.[4] This information allows the IRS to verify donors’ tax compliance regarding proper deductibility of their contributions. The IRS must keep the Schedule B information confidential, on pain of federal civil and criminal sanctions for improper disclosure.

However, even though the California Attorney General’s Office assured charities that their IRS Form 990 Schedule B information would remain confidential, leaks and inadvertent disclosures occurred. In fact, some Schedule B information was publicly available online through the California Registry of Chartable Trusts’ database system. Individuals associated with the Americans for Prosperity Foundation and Thomas More Law Center, the plaintiffs in the lawsuit, faced death threats and other harassment due to their involvement in these charities and, thus, the nonprofits’ leaders feared that providing donor information to the California Attorney General would chill donations and hinder important charitable work. The plaintiffs argued that California’s donor disclosure requirement created an unconstitutional burden on donors’ First Amendment freedom of association.

The Supreme Court case has lasted through the terms of three California Attorneys General (i.e., Kamala Harris, Xavier Becerra, and Rob Bonta), and has a convoluted history. In 2014, Americans for Prosperity and Thomas More Law Center secured injunctions against California’s regulation requiring donor disclosure at the district court level. The Ninth Circuit rejected a facial challenge to the regulation, vacated the district court’s injunctions, and remanded the case. Upon remand, the district court reissued the injunctions, reasoning “that Schedule Bs were rarely used to audit or investigate charities,” and so the state regulation was overbroad in its application.[5] In doing so, the district court explained that the California Attorney General could acquire donor information through other means, such as subpoenas. The Ninth Circuit reversed again, then denied a rehearing en banc in 2019. 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.[6]

Key Case Takeaways

In AFPF v. Bonta, the Supreme Court acknowledged that the California Attorney General, like all other charity regulators, has an important government interest in preventing fraud, protecting charitable assets from self-dealing, and maintaining the integrity of charitable registration documents.[7] The AG, however, failed to show that its Schedule B disclosure requirement was related to this important interest; rather, the primary interest at play was one of mere administrative convenience. Writing for the majority, Chief Justice Roberts reasoned that the California Attorney General’s Office was “indiscriminately sweeping up the information of every major donor with reason to remain anonymous.”[8] The Supreme Court determined that even the risk of chilling association is a burden on First Amendment rights, no matter whether such risk is ultimately realized through actual threats, violence, or harassment.

The Justices disagreed on the proper analysis for evaluating the constitutionality of California’s regulation. Justices Roberts, Barrett, and Kavanaugh reasoned that (1) “exacting scrutiny” should apply to this case and that (2) this standard means donor disclosure requirements must be “narrowly tailored to an important government interest.”[9] In his concurrence, Justice Thomas argued for “strict scrutiny” in the context of protecting the right to association under the First Amendment.[10] Strict scrutiny requires “a compelling interest and a minimally intrusive means of advancing that interest.”[11] In other words, to survive this level of scrutiny, a challenged law needs to be essential or necessary, and the means of carrying out the law need to be the least restrictive possible.[12] Also concurring in part, Alito and Gorsuch declined “to hold that a single standard applies to all disclosure requirements,” but agreed that California’s regulation would fail under either level of scrutiny.[13]

Sotomayor, Breyer, and Kagan dissented, agreeing with the majority that the appropriate level of scrutiny was “exacting scrutiny,” but arguing that this level of scrutiny offered “a more flexible approach” that could be adjusted, case-by-case, for “[t]he more serious the burden on First Amendment rights.”[14] The dissenting Justices also disagreed with the majority’s “presumption that all disclosure requirements are burdensome,” reasoning instead that “if a disclosure requirement imposes no burden for the Court to remedy, there is no need for it to be closely scrutinized.”[15]

What’s Next?

The case is not finished, as it has been remanded to the district court. Final judgment will be entered in favor of Americans for Prosperity and Thomas More Law Center. For all practical purposes, though, the ruling takes immediate legal effect for all other nonprofit organizations. This means that charities registered to solicit in California should not submit Schedule B for any future renewal registrations.

California spearheaded the Schedule B disclosure requirement. New York and New Jersey quickly followed to require disclosing an unredacted copy of Schedule B for charitable solicitation registrations. These states’ disclosure requirements soon may be struck down in light of the Supreme Court’s decision.

Is the Supreme Court’s ruling in this case a surprise? No, for two reasons.

First, state regulators have a history of overstepping the permissible bounds of the First Amendment in regulating charities soliciting for charitable donations. During the 1980s and 1990s, the Supreme Court issued three different rulings holding that various fundraising regulations were unconstitutional under the First Amendment. Thus, it is a safe bet that other current or future practices relied on by states to regulate charities fundraising will once again be the subject of a Supreme Court ruling. Second, the Supreme Court’s ruling exemplifies the Court’s current trend of strengthening and expanding First Amendment protections in the areas of free speech, religious liberty, and freedom of association.

At the federal level, the underlying submission of Schedule B to the IRS could face challenges by nonprofit organizations, or the IRS may decide internally to forego collection of Schedule B information. There is, however, a significant substantive distinction between the rationales for the IRS’ collection of Schedule B information and the purposes articulated by the states. The IRS can use the Schedule B information to analyze whether the charitable deductions claimed by the donors matches the information reported by recipient the charities. Thus, any constitutional challenge to the IRS’ collection of Schedule B is unlikely to succeed.  

 

[1] The opinion may be found here.

[2] Americans for Prosperity Foundation v. Bonta, No. 19-251, 2021 U.S. LEXIS 3569, at *23-24.

[3] Id. at *33-34.

[5] Americans for Prosperity Foundation v. Bonta, No. 19-251, 2021 U.S. LEXIS 3569, at *13.

[7] Americans for Prosperity Foundation v. Bonta, No. 19-251, 2021 U.S. LEXIS 3569, at *6.

[8] Id. at *31.

[9] Id. at *32

[10] Id. at *35 (Thomas, J., concurring).

[11] Id. at *40 (Thomas, J., concurring).

[12] Id. (Thomas, J., concurring).

[13] Id. at *39 (Alito, J., and Gorsuch, J., concurring).

[14] Id. at *52 (Sotomayor, J., Breyer, J., and Kagan, J., dissenting).

[15] Id. at *49-50 (Sotomayor, J., Breyer, J., and Kagan, J., dissenting).