A three-judge panel of the Ninth Circuit Court of Appeals1 recently upheld the position of the California Attorney General (AG) that charities located or doing business in California must provide a copy of their unredacted Form 990 Schedule B, including the names, addresses and contribution amounts for all donors listed with the annual report filed with the AG.2 While the AG has indicated that the collected information will not be made publicly available, this is unwelcome news for charities that are concerned about protecting their donors’ identities.3

Out-of-state charitable organizations that solicit contributions or do business in California should consider the effect of these disclosure requirements on donor relations. All affected charities, including out-of-state charities, should review their donor confidentiality policies and disclosures to ensure that their donors are aware of California’s disclosure requirement.

Regulation of Charities Located or Doing Business in California

Most California charities and certain out-of-state charities doing business or holding property in California are required to register and file an annual report (Form RRF-1) with the AG’s Registry of Charitable Trusts. Religious organizations, educational institutions, hospitals and health care service plans are exempt from this registration and reporting.

A copy of the charity’s annual IRS information return (Form 990 or Form 990-EZ) must be included with the annual report. The AG treats annual reports submitted without Schedule B or with a redacted Schedule B as incomplete. Failure to file a complete report generally results in penalties, fees and the loss of California income tax exemption.

Several states, including New York, have a similar filing requirement. Both the California and New York AGs have stated that it is not their policy to disclose Schedule B to the public. In 2016, the California AG formalized its policy, adopting a regulation that makes Schedule B information confidential and exempts it from public inspection except in a judicial or administrative proceeding or in response to a search warrant.4 Of course, there is no guarantee that their disclosure policies and related regulations will not change in the future.

Schedule B – Donor Disclosure

Schedule B to the Form 990 is used to disclose to the IRS the reporting organization’s significant donors (generally those who contribute over $5,000 in cash or property), including their names, addresses, and the type and amount of the contribution. Charities are generally required to make available, for public inspection and copying, their three most recent information returns, including all schedules, attachments and supporting documents. Most such returns are posted and publicly available at no cost on third-party websites, such as Guidestar.org.

However, except for private foundations (Form 990-PF filers) and section 527 political organizations, public disclosure of the names and addresses of contributors on Schedule B generally is not required, and the Schedules B of those organizations typically do not appear when posted online.5

Americans for Prosperity Foundation v. Becerra

In an earlier case, Americans for Prosperity Foundation and Thomas More Law Center challenged the California AG’s collection of Form 990 Schedule B information.6 They argued that confidential disclosure to the California AG itself chills protected conduct or would lead to persecution and harassment of their donors by the state or the public. They also argued that, notwithstanding the California AG’s voluntary policy against disclosing Schedule B forms to the public, the California AG may change its policy or be compelled to release the forms under state law, such as public records laws, and that the resulting public disclosure would lead to harassment of their donors by the public, chilling protected conduct.

The Federal District Court granted a motion for a permanent injunction enjoining the California AG from demanding the plaintiffs unredacted Schedule B information.7 The Ninth Circuit later vacated the injunctions and rejected the arguments that were presented by both organizations.8 Now a three-judge panel of the Ninth Circuit has entered a judgement in favor of the California AG with respect to the state’s Schedule B disclosure requirement.9

The panel found that requiring charities to disclose their Schedule B information to the State was substantially related to an important State interest in policing charitable fraud. The panel further concluded this requirement does not create a burden on donors’ First Amendment rights because it is collected solely for nonpublic use, and the risk of inadvertent public disclosure is slight. This decision appears to close the book on any new confidentiality exceptions to California’s filing requirement for charities.

Conclusion

This latest decision is in line with what appears to be a growing trend by State Attorneys General to demand sensitive donor information from charities operating or soliciting in those states. Charities should continue to follow the Schedule B instructions and not include Schedule B filings with states that do not require it, as those states may inadvertently disclose the charity’s donor information to the public.10 Out-of-state charities not currently registered with the California AG’s Registry of Charitable Trusts that would like to solicit contributions or otherwise do business or hold property in California should consider contacting local counsel for advice regarding their activities within the State to avoid or minimize potential penalties.11