The Internal Revenue Service and US Treasury Department have requested comments on proposed rules to enable certain tax-exempt organizations to redact information about donors on their annual information returns.
The Internal Revenue Service (IRS) and US Department of the Treasury recently issued proposed regulations allowing certain tax-exempt organizations—including social welfare organizations, labor unions, and business leagues—to redact the names and addresses of contributors on annual information returns. Section 501(c)(3) charitable organizations are not eligible for this donor disclosure relief. The proposed regulations, issued on September 6, reassert the guidance originally set forth in Revenue Procedure 2018-38, which was recently overturned by a Montana district court. Those interested in submitting comments on the proposed regulations have until December 9, 2019 to do so.
Donor Information Reporting Requirements Under Proposed Regulations
The proposed regulations update the information reporting requirements under Treasury Regulations Section 1.6033-1 to provide that only organizations described in Sections 501(c)(3) and 527 would continue to be required to report the names and addresses of substantial contributors on Schedule B of Form 990 or 990-EZ, or on Form 990-PF. However, all organizations must continue to report the contribution amounts from each substantial contributor and maintain records of the names and addresses of substantial contributors as part of books and records subject to inspection by the IRS.
The preamble to the proposed regulations provides that “[t]he IRS does not need the names and addresses of substantial contributors to tax-exempt organizations not described in section 501(c)(3) to be reported annually on Schedule B of Form 990 or Form 990-EZ in order to carry out the internal revenue laws, including provisions dealing with transfer taxes.” While social welfare organizations, labor unions, and trade associations are permitted to make political campaign contributions, the preamble states that the donor names and addresses on Schedule B are not necessary for compliance with campaign finance laws because “Congress has not tasked the IRS with the enforcement of campaign finance laws” and “the Code generally prohibits the IRS from disclosing any names and addresses of such organizations’ substantial contributors to federal agencies for nontax investigations, including campaign finance matters, except in narrowly prescribed circumstances.” As such, the preamble asserts that the requirement to report such information unjustifiably increases compliance costs for affected organizations and the IRS, which is required to redact the donor names and addresses from the publicly available returns.
The IRS originally extended this donor disclosure relief under Revenue Procedure 2018-38, as described in a previous LawFlash. However, Revenue Procedure 2018-38 was recently set aside by the US District Court for the District of Montana in Bullock v. IRS, No. 4:18-cv-00103-BMM (D. Mont. July 30, 2019). The District Court of Montana ruled that the IRS had failed to comply with the requirements of the Administrative Procedure Act by failing to apply the notice and comment procedures to Revenue Procedure 2018-38. The time for filing a notice of appeal to the US Court of Appeals for the Ninth Circuit has not yet elapsed and it is uncertain whether the IRS will seek appeal.
Other Updates Under Proposed Regulations
The proposed regulations also incorporate statutory amendments to Internal Revenue Code Section 6033 and encompass changes to the exempt organization reporting requirements provided under previous revenue procedures. The proposed regulations contextualize these changes as an effort to centralize exempt organization reporting requirements in the regulations.
Specifically, the proposed regulations
- add the excise taxes imposed under Sections 4911, 4912, 4955, 4958, and 4959 to the list of items generally required to be reported, as required under Section 6033(b)(10) and (11);
- incorporate into the regulations the statutory reporting requirements found in Section 6033(h) for controlling organizations (as defined in Section 512(b)(13)), Section 6033(k) for sponsoring organizations (as defined in Section 4966(d)(1)), and Section 6033(l) for supporting organizations (as defined in Section 509(a)(3));
- increase the gross receipts threshold for the Form 990 filing requirement from $5,000 to $50,000, as previously increased under Revenue Procedure 2011-15;
- incorporate the relief from the filing requirement under Section 6033(a) previously granted under Revenue Procedure 2011-15 to foreign organizations and organizations formed in a US possession that are exempt under Section 501(a) (other than private foundations and supporting organizations) and have no significant activity in the United States; and
- clarify that Section 527 organizations with gross receipts greater than $25,000 generally are subject to the reporting requirements under Section 6033(a)(1) as if they were exempt from taxes under Section 501(a).
Prior to the issuance of final regulations, organizations may choose to apply the proposed regulations to returns filed after September 6, 2019. However, Revenue Procedure 2018-38 was set aside on July 30 (at least in Montana), leaving a gap during which organizations could not rely on either the revenue procedure or the proposed regulations for relief from the requirement to file returns including donor names and addresses.
Comments on the proposed regulations are due by December 9, 2019. The IRS has specifically requested comments on whether the final regulations should incorporate any other statutory changes or any other discretionary relief from the filing requirements already granted under other guidance. For example, Section 501(c)(3) organizations might observe that the preamble’s statements that donor names and information are not required for the administration of tax law is equally applicable to Section 501(c)(3) organizations as to other organizations. On that basis, a Section 501(c)(3) organization that is so inclined may wish to consider submitting comments requesting that the IRS exercise its discretionary authority under Section 6033 to extend the relief from donor disclosure requirements to certain Section 501(c)(3) organizations as well.
Organizations described in Section 501(c)(3) or Section 527 are still required by statute to report donor names and addresses on Form 990, 990-EZ, or 990-PF.
Other Section 501(a) organizations (including social welfare organizations, labor unions, and business leagues) may rely on the proposed regulations to complete Schedule B, including only the required contribution amounts, without disclosing the names and addresses of substantial contributors. Such organizations should continue to maintain the contributor names and addresses as part of their books and records.
The proposed regulations reflect the same relief that the IRS and Treasury had previously granted under various revenue procedures. Organizations qualifying for the relief that was provided under previous revenue procedures and is now incorporated into the proposed regulations may continue to file in the same manner.