IRS reduces donor disclosure requirements for some tax-exempt groups

The Treasury Department and IRS on Tuesday released final regulations under which certain tax-exempt groups will no longer be required to provide the names and addresses of major donors on annual returns filed with the IRS.

Under the guidance, only charities that are tax-exempt under Section 501(c)(3) of the code and political organization that are tax-exempt under Section 527 will still have to report contributor names and addresses.

Organizations that do not have to provide the donor names and addresses under the guidance include “social welfare” organizations — such as the National Rifle Association (NRA) and the American Civil Liberties Union (ACLU) — as well as business leagues and labor unions.

Tax-exempt groups that do not have to provide the IRS with the names and addresses of major donors under the rules still have to report to the IRS the amounts of donations from their substantial donors. They also have to maintain the names and addresses of their substantial donors for their records.

The Treasury Department and the IRS had issued proposed rules on the topic in September 2019. The IRS had tried in 2018 to issue more informal guidance on this topic, but in July 2019, a federal judge in Montana ordered that guidance to be set aside because it hadn’t gone through a notice and comment period.

Treasury and the IRS said they received more than 8,000 comments about the proposed rules. 

Conservative groups and Republican politicians expressed support for the proposed rules. They argued that removing the requirement to report the names and addresses of donors helps protect taxpayers’ First Amendment rights and that such information is not needed for tax administration purposes. They also expressed concerns that the the donor names and addresses could be inadvertently made public.

But the rules have been strongly opposed by Democrats, who have expressed concerns that they could make it easier for foreign governments to influence U.S. elections via donations to “dark money” groups.

Treasury and the IRS said in their guidance document Tuesday that “Congress has not authorized the IRS to enforce campaign finance laws” and that the IRS is generally prohibited from disclosing donors’ names and addresses to federal agencies for non-tax investigations, “except in narrowly prescribed circumstances.”

The agencies said they have concluded that the IRS doesn’t need the names and addresses of donors to organizations, outside of 501(c)(3) nonprofits, in order to administer tax laws and that the IRS is removing the disclosure requirement “in light of the risks and burden associated with requiring the annual reporting of such information.”

Organizations can choose to apply the regulations to tax returns filed after Sept. 6, 2019 — the date the proposed rules were issued. Otherwise, the rules are effective for returns that are filed after the date that the rules are published in the Federal Register, which is expected to be Thursday.

Sen. Ron Wyden (Ore.), the top Democrat on the Senate Finance Committee, blasted the final rules in a statement on Tuesday.

“The Trump administration has opened the flood gates 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,” Wyden said. “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.”

Updated at 7:40 p.m.