A federal judge on July 30, 2019 overturned the IRS’s new rules that eliminated donor disclosure for many nonprofits, released by the IRS almost exactly a year ago.
In Revenue Procedure 2018-38 (July 16, 2018), the IRS allowed section 501(c)(4) and section 501(c)(6) organizations, as well as many other types of organizations required to file a Form 990 series return, to cease disclosing their large donors ($5,000 or more) on Schedule B of the Form 990. The major exceptions were section 501(c)(3) organizations and section 527 political organizations, both of which are subject to statutory requirements for donor disclosure that the IRS could not waive. Those IRS rules are described in more detail here.
Even though the names of donors disclosed on Schedule B of the Form 990 were not made available to the public, only to the IRS, many commentators viewed the new rules as facilitating “dark money” in politics. The state of Montana, joined by the state of New Jersey, brought a lawsuit alleging that the IRS could not simply waive the donor disclosure requirements, which were established by IRS regulation, without providing an opportunity for public comment in accordance with the Administrative Procedure Act.
In his decision this week, Judge Brian Morris of the U.S. District Court of Montana agreed, and set aside the IRS’s new rules. The IRS has not yet announced whether it will appeal.
The question now is whether nonprofit organizations who need to file Form 990 should disclose their donors. The first Form 990s on which donors did not have to be disclosed were those due May 15, 2019. However, many nonprofit organizations took advantage of the automatic extension and have not yet filed. If nonprofits have yet to file their Form 990, it is certainly safest to disclose donors. However, there may be a position that the court decision is not final until the IRS’s time to appeal has expired, or if the IRS does appeal, that the court decision is not final until the court proceedings are complete. The IRS may issue guidance for nonprofits on how to proceed in any interim period.
For those nonprofit organizations that have already filed their Form 990 without disclosing donors on Schedule B, acting in good faith in compliance with IRS guidance in effect at the time of filing, while it is not completely without risk, there is support for the position that they are not obligated to file amended returns disclosing their donors.1
We will be monitoring developments, including any guidance that may be forthcoming from the IRS, and are available to advise if you have questions on how to manage your particular filing situation