On May 26, the United States Treasury Department and the Internal Revenue Service issued a final regulation exempting select nonprofits from disclosing donor information on annual returns they file with the IRS. Under the regulation, which takes effect retroactively to returns filed after Sept. 6, 2019, only 501(c)(3) and 527 groups are required to report the names and addresses of their donors. Donor information reported to the IRS is not released to the public.

501(c)(3) entities are charitable, religious, and educational organizations. 527 groups are nonprofits operating primarily for the purpose of influencing the election or selection of candidates for political office.

Other 501(c) groups that had been required to disclose donor information are now not required to do so. Now-exempted organizations include the following:

• 501(c)(4) groups: social welfare organizations (e.g., American Civil Liberties Union, National Rifle Association)
• 501(c)(5) groups groups (e.g., labor unions)
• 501(c)(6) groups (e.g., business leagues)

Background

On July 16, 2018, the IRS issued Revenue Procedure 2018-38, which exempted 501(c) nonprofits from reporting the names and addresses of their donors to the agency. The rule change did not apply to 501(c)(3) organizations. On July 30, 2019, Judge Brian Morris, of the U.S. District Court for the District of Montana, struck down the procedure, ruling that the federal government had failed to comply with the public notice-and-comment process required under the Administrative Procedure Act. Morris was appointed to the bench by Pres. Barack Obama (D).

On Sept. 10, 2019, the Treasury Department and the IRS issued its proposed regulation exempting some nonprofits from existing donor disclosure requirements. The public comment period closed on Dec. 9, 2019. The proposed regulation received 8,387 written and electronic comments. A public hearing was held on Feb. 7.

Reactions

• Brent Gardner, from Americans for Prosperity, said, “All citizens should be able to join together to hold their government accountable. These reforms make it easier for Americans to support causes and join groups without being monitored and intimidated by those in power. When people are free to stand alongside others who share their deeply held beliefs, they’re able to amplify their individual voices—contributing to a diverse public square and continued social progress.”

• Trevor Potter, president of the Campaign Legal Center, said, “At a time when over $10 billion total is expected to be spent during this election season, the requirement that organizations (like the National Rifle Association) report their donors to the IRS was key to ensuring that the foreign-money ban on elections was enforced. Now the Federal Election Commission (FEC) and the Department of Justice (DOJ) are left without another tool to enforce the campaign finance laws under-girding our democracy. Voters expect and deserve more.”

• In a 2018 speech, Majority Leader Sen. Mitch McConnell (R) said the following in support of Revenue Procedure 2018-38: “It’s bad enough to wield government power to chill political speech and invite harassment of citizens – based on what an angry mob might assume their opinions are, based on their private financial records. It’s even more egregious to pursue that nakedly political goal while calling it ‘good government.’ In this country, good government means protecting citizens’ First Amendment rights to participate in the competition of ideas – not trying to shut down that competition. We persuade; we don’t intimidate.”

• Oregon Sen. Ron Wyden (D), ranking member on the Senate Finance Committee, said, “The Trump administration has opened the floodgates to dark money pouring into our election system just months before Donald Trump is on the ballot. We’re in the midst of a global pandemic and once-in-a-lifetime economic crisis and the Trump administration is prioritizing boosting the president’s political prospects with shady cash. In finalizing this rule, the Treasury Department ignored the concerns of election security experts — anything to allow hostile foreign interests and groups like the NRA to further undermine our democracy.”

What we’ve been reading

• John Locke Foundation, “Preserving Donor Privacy in North Carolina,” May 29, 2020
• Bloomberg Tax, “Burden Shifts to States After IRS Eases Donor-Disclosure Rules,” May 28, 2020
• The Hill, “IRS reduces donor disclosure requirements for some tax-exempt groups,” May 26, 2020

The big picture

Number of relevant bills by state: We’re currently tracking 47 pieces of legislation dealing with donor disclosure. On the map below, a darker shade of green indicates a greater number of relevant bills. Click here for a complete list of all the bills we’re tracking.

Number of relevant bills by current legislative status

Number of relevant bills by partisan status of sponsor(s)

Recent legislative actions

Below is a complete list of legislative actions taken on relevant bills since our last issue. Bills are listed in alphabetical order, first by state then by bill number.

• Tennessee HB2665: This bill would prohibit public agencies from requiring 501(c) entities to furnish them with personal information about donors.
  • Republican sponsorship.
  • House Judiciary Committee hearing scheduled for June 2.
• Tennessee SB2886: This bill would prohibit public agencies from requiring 501(c) entities to furnish them with personal information about donors.
  • Republican sponsorship.
  • Senate State and Local Government Committee hearing scheduled for June 2.