By Marc Berger, CPA, JD, LLM
On July 16, 2018, the Internal Revenue Service (IRS) released Revenue Procedure 2018-38, modifying the information reported to the IRS by certain tax-exempt organizations on their annual Form 990 or Form 990-EZ information return. Affected organizations will no longer be required to report the names and addresses of their reportable contributors on Schedule B of their Forms 990 or 990-EZ.
This change affects all organizations that are tax-exempt under Section 501(c), other than charitable organizations described under Section 501(c)(3). This includes labor unions, trade associations, social welfare groups, issue-advocacy groups, local chambers of commerce and veteran groups. Nevertheless, Section 527 political organizations, like charitable organizations, will still be required to report the names and addresses of their reportable contributors on their annual returns.
The reasons provided by the IRS for the change include decreased compliance costs for affected organizations, reduced consumption of IRS resources in connection with the redaction of such information and reduced risk of the inadvertent disclosure of information that’s not open to public inspection.
The tax-exempt organizations relieved of the obligation to report the names and addresses of their contributors must continue to keep this information in their books and records in case the IRS wishes to examine this information. In addition, the change does not affect the reporting of contribution information on Schedule B, other than the names and addresses of contributors, including the dollar amount of contributions.
The revised reporting requirements apply to information returns for tax years ending on or after Dec. 31, 2018. Thus, the revised requirements generally will apply to returns that become due on or after May 15, 2019.
Implications for Nonprofits
Reactions to the new rules from those affected are strong.
Advocates claim it as an important win that supports:
- Data privacy: While the IRS isn’t allowed to disclose confidential donor information, it has inadvertently done so in the past. Eliminating this information from tax filings will reduce the chances it may be accidentally released or fall into the wrong hands.
- Free speech: Free-speech advocates believe donor information should be kept private, so that it can’t be used by the government to target donors. For example, the IRS was previously accused of unfairly targeting Tea Party and progressive groups.
Critics express several concerns:
- Hampers fraud detection: The IRS may not need donor information for tax administration purposes, but it is useful for detecting fraud. The government will now have no means to track how cash is being funneled into these tax-exempt organizations, leaving the door open to potentially dangerous and foreign influences.
- Reduces fiscal transparency: The move is a major setback for those who champion more transparency around political donations. While donor information was never disclosed to the public, the government will now remain in the dark about how foreign actors might be influencing the political landscape.
Regardless of the new guidance, all tax-exempt organizations should still diligently collect information about their donors to prepare for a potential audit or change of course by the IRS down the road.