The US Treasury Department has announced that tax-exempt organizations that are not 501c3 charities or Section 527 political action committees will no longer have to disclose their donors on the IRS Form 990. The change takes effect with information on returns for taxable years ending on or after December 31, 2018.
As noted in a Wall Street Journal editorial, “Congress required the IRS to collect 501(c)(3) information in the 1960s, but in 1971 the Nixon Administration extended the reporting requirement to other nonprofits.” In short, the law required 501c3 groups to disclose donors to the IRS, but the donor disclosure requirement for other types of nonprofits is set in regulation which can be set or changed by the executive branch without Congressional action.
The Treasury Department’s action is explained in a press release and official IRS guidance memo, which cites three key benefits of the move: the IRS doesn’t use the Schedule B information from non-charitable groups as part of tax enforcement; the risk of inadvertent or intentional disclosure of confidential return information is eliminated if the information is not reported; and the policy change will reduce administrative costs for both affected filers and the IRS.
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The change affects more than 300,000 labor unions, chambers of commerce, recreation clubs, black lung benefit trusts, and other nonprofit organizations that do not offer donors the benefit of donation deductibility. However, it’s an open secret that the intent is to aid in concealing the donors to 501c4 social welfare groups often involved in significant political activity, sometimes referred to as “dark money” groups. In addition to further shrouding the identities of donors from the IRS, the rule change also makes it more difficult for states seeking to regulate political expenditures on elections held within their borders.
Rather than simply requiring 501c4 groups to file copies of their Form 990 Schedule B list of contributors with state regulators, the states will now have to devise their own reporting forms and requirements, promulgate administrative rules and/or authorizing legislation, and prepare to withstand court challenges from objecting groups. This adds time and expense to an already difficult effort to identify the sources and extent of dark money in state-level political campaigns.
The WSJ editorial notes that the decision from the Trump administration (overturning a regulation written during the Nixon administration) could easily be reinstituted by a subsequent presidential administration and advises Congress to quickly pass legislation to embed the regulation in statute. Proponents of nonprofit donor disclosure (and more rather than less openness in government) might be at least as interested in opposing, or at least delaying, any such legislative effort until the outcome of the midterm elections determines which political party controls Congress in 2019.—Michael Wyland