Legal Sidebari

Nonprofit Donor Information Disclosure
Updated August 1, 2019
UPDATE: On July 30, 2019, the United States District Court for the District of Montana set-
aside as unlawful IRS Revenue Procedure 2018-38, which is the subject of this post. The Revenue
Procedure would have eliminated the requirement that certain tax-exempt organizations disclose the
names and addresses of their “substantial” donors in annual reports to the IRS. If the court decision
stands and the law remains unchanged, the IRS would need to go through the Administrative Procedure
Act’s notice-and-comment rulemaking process in order to implement Revenue Procedure 2018-38’s donor
disclosure policy changes.
The original post from April 14, 2018 is below.
In July 2018, the Internal Revenue Service (IRS) announced that certain organizations that are exempt
from paying federal income tax (tax-exempt organizations or EOs) under the Internal Revenue Code
(IRC), including social welfare organizations, labor unions, and trade associations, will no longer be
required to disclose the names and addresses of their “substantial” donors in Schedule B of their annual
Form 990 returns to the IRS. Charitable tax-exempt organizations described in IRC Section 501(c)(3),
which are statutorily required to disclose certain donor information, were not impacted by the July 2018
policy.
The IRS noted several reasons for making the change, including reducing administrative burdens and
protecting sensitive, nonpublic personal information. In opposition, some have argued that the IRS’ policy
change will reduce transparency over the funding sources of EOs’ political activities and make it more
difficult for the IRS to enforce tax laws. At least one state has filed a lawsuit seeking to have the new
policy set aside, alleging that the IRS implemented the policy in violation of the Administrative Procedure
Act (APA).
This Sidebar will first provide background on the statute and regulations regarding EOs’ disclosure of
contributor information. Next, the Sidebar will discuss the justifications of and reactions to the new
policy, including the views of proponents and opponents of the new policy. The Sidebar will then discuss
the litigation Montana has filed against the policy. Finally, the Sidebar will provide considerations for
Congress.
Congressional Research Service
https://crsreports.congress.gov
LSB10187
CRS Legal Sidebar
Prepared for Members and
Committees of Congress

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Donor Information & Tax-Exempt Organizations
Organizations seeking to qualify for exemption from federal income tax under the IRC are subject to
various standards and restrictions. For example, many EOs are required to file an annual return (Form
990) that includes information required by the IRC and implementing regulations and that is made
publicly available after eliminating certain sensitive, nonpublic information.
Organizations seeking to qualify for tax exemption under Section 501(c)(3) of the IRC must operate
exclusively for a charitable, religious, educational, or other exempt purpose and may not engage in
election campaign activities. In addition to income tax exemption, many 501(c)(3)s also are eligible to
receive tax-deductible donations, and these EOs are required by statute to disclose the names, addresses,
and amounts of contributions received from “substantial” donors in their annual IRS returns.
In contrast, other organizations may qualify for tax-exemption under other sections of 501(c), such as
social welfare organizations (501(c)(4)s), labor unions (501(c)(5)s), and trade associations (501(c)(6)s).
These other 501(c)s generally are permitted to engage in some campaign activities, but contributions to
them generally are not tax deductible. By regulation, these other 501(c)s have historically been required
to disclose the same donor information in their Form 990s that 501(c)(3)s are required to report by statute.
The IRS Commissioner is authorized to exempt certain EOs from Form 990 reporting requirements when
“he determines that such returns are not necessary for the efficient administration of the internal revenue
laws.” Utilizing this authority, the IRS Commissioner, through Revenue Procedure 2018-38, recently
eliminated the requirement that EOs organized under Section 501(c)—other than 501(c)(3)—report the
names and addresses of large donors. Revenue Procedure 2018-38 does not impact any other reporting
requirements, meaning that EOs organized under Section 501(c) must continue to report other non-
sensitive donor information, such as contribution amounts, in their annual Form 990s. Additionally,
although these organizations no longer need to include donor names and addresses in their annual filings
with the IRS, they must maintain this information in their records and provide it to the IRS upon request.
In addition, Revenue Procedure 2018-38 does not modify donor reporting requirements applicable to
501(c)(3)s or super political action committees (PACs) and other political organizations that qualify for
federal income tax exemption under IRC Section 527.
Legal Justifications for the Policy & Reactions
The IRS provided three reasons for the policy change in Revenue Procedure 2018-38. First, the IRS noted
that it does not need the donor information to administer the tax code, in part because of legislative
changes made in 2015. Second, according to the IRS, eliminating the disclosure requirement “reduc[es]
the risk of inadvertent disclosure or misuse of confidential [donor] information.” Third, eliminating the
disclosure requirement for certain EOs reduces the administrative burdens both of those EOs, by
eliminating paperwork requirements, and the IRS, which historically had to expend resources scrubbing
donor names and addresses from Form 990 information that is disclosed publicly.
Other proponents of Revenue Procedure 2018-38 argue that the IRS’ action strengthens values espoused
by the First Amendment to the U.S. Constitution. According to this view, the change will allow
individuals within an EO to speak with their purse without fear that sensitive donor information will
become publicly available and potentially subject donors to political harassment from individuals who
disagree with the mission or political views of the recipient EO.
Critics argue that the new policy could have deleterious effects on transparency, law enforcement, and
campaign finance. Specifically, critics argue that the IRS’ finite resources limit its ability to investigate
and enforce tax laws, and eliminating donor information disclosure—data points that can raise red flags
that justify further investigation—will only exacerbate those limitations. This in turn, some argue, could

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embolden bad actors to misuse funds by, for instance, illegally funneling contributions from foreign
nationals or tax-deductible charitable donations to engage in political campaign activity in the United
States.
Litigation
As previously mentioned, the State of Montana filed a lawsuit alleging that the process by which the IRS
implemented Revenue Procedure 2018-38 violated the APA and therefore Revenue Procedure 2018-38
should be set aside. Specifically, Montana alleges that “Revenue Procedure 2018-38 is a substantive or
legislative rule” that may only be implemented after the IRS provides public notice and the opportunity
for public comment in accordance with the APA, which the IRS did not do. The state further argues that
the IRS failed to support the policy change with “reasoned analysis” and, thus, the IRS’ implementation
of Revenue Procedure 2018-38 was “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law,” in violation of the APA.
Montana alleges that “Revenue Procedure 2018-38 effects several distinct kinds of injury to Montana.”
The state contends that Revenue Procedure 2018-38 “interfere[s] with Montana’s ability to gather data
that the state needs in order to administer its tax laws.” (Notably, Montana has the most tax-exempt
organizations per capita of any state). The state’s complaint notes that federal law allows the IRS to share
the EO donor information the IRS collects with state officials, and that Montana relies on the information
IRS shares with Montana to enforce its own tax and election laws. According to the complaint, “[t]he
sources of an organization’s income—particularly the identities of its significant contributors”—are
crucial for a state to determine whether an organization qualifies under state law for tax-exempt status and
whether it continues to comply with tax, election, and other laws. Without this donor information,
Montana argues that, among other things, it is more likely to grant tax exemptions erroneously, thus
depriving the state of tax revenue. In light of the importance of this information to the administration of
state laws, Montana contends that the enforcement of Revenue Procedure 2018-38 “will impose
substantial pressure on the State of Montana to change its laws . . . to create a new procedure for the
collection of significant contributor names and addresses.” Montana further contends that such a change
in state law and procedure will require the expenditure of significant state resources. Montana also argues
that other states will face the “same or greater burdens if significant contributors are no longer disclosed
to the IRS.”
Considerations for Congress
Members of Congress have expressed opposing views of Revenue Procedure 2018-38, with some praising
and others criticizing the policy. One Senator announced he will refuse to support the confirmation of
nominees to the IRS unless they commit to reversing the policy. Whether or not policymakers agree with
Revenue Procedure 2018-38, Congress can address the issue by, for instance, either passing legislation
consistent with the IRS guidance or that mandates all 501(c)s—not just 501(c)(3)s—disclose the names
and addresses of their substantial donors in their Form 990 annual returns. Congress also could pass
legislation eliminating or curtailing the IRS Commissioner’s discretionary authority to exempt EOs from
Form 990 reporting standards. Bills that would implement these divergent policies have been introduced
in the 115th Congress. For example, H.R. 4916, the “Preventing IRS Abuse and Protecting Free Speech
Act,” would, with few exceptions, bar the IRS from requiring 501(c)s to disclose personally identifiable
donor information in their annual returns. On the other side of the spectrum, S. 3284, the “Spotlight Act,”
would repeal Revenue Procedure 2018-38, require 501(c)(4)s, (c)(5)s, and (c)(6)s to disclose substantial
donor names and addresses in their annual Form 990s, and eliminate the IRS Commissioner’s authority to
provide exemptions from the disclosure requirements.

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Author Information

David H. Carpenter

Legislative Attorney




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LSB10187 · VERSION 7 · UPDATED

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