District Court Revives Donor Reporting Requirement in IRS Form 990, Schedule B
On July 30, a U.S. District Court judge in Montana invalidated the IRS’s 2018 rule that had eliminated the need for most 501(c) organizations to report the names of their large donors to the IRS.
In July 2018, the IRS adopted Rev. Proc. 2018-38, in which it relieved Section 501(c) organizations, other than Section 501(c)(3) organizations, of the obligation to report the names and addresses of donors giving $5,000 or more during the year on IRS Form 990, Schedule B, beginning with tax year 2018 (due on or after May 15, 2019 unless an extension is elected). Under the revenue procedure, organizations were still required to collect and preserve this information, as well as to provide it upon request to the IRS. As before, all donor information, whether or not reported to the IRS, remained strictly confidential and not subject to public disclosure.
Rev. Proc. 2018-38 was favorably viewed by organizations who were concerned about incidents over the years where confidential donor information contained in Schedule B was improperly or inadvertently disclosed by the IRS, state agencies and individuals with access to the forms. Groups generally favoring public disclosure of donor information opposed the revenue procedure, even though donor names remained strictly confidential and not subject to donor disclosure both before and after the new rule.
On July 30, 2019, U.S. District Court Judge Brian Morris issued an order holding Rev. Proc. 2018-38 unlawful. The court held that Montana and New Jersey had standing to challenge the rule based on their alleged need and use of donor information. Without addressing the merits of the rule, the District Court held that it was invalid because the IRS failed to follow the notice-and-comment procedures in the Administrative Procedure Act.
As a result of this District Court decision, the obligation to report donor names and addresses to the IRS is revived for returns relating to tax years 2018 and later. What this means to organizations that have already filed their 2018 returns is unclear. Also, there are no reports yet whether the IRS will seek a stay pending an appeal or initiate a formal rule-making to reinstate the rule. Whatever the final decision, donor names and addresses will continue to be strictly confidential and not subject to public disclosure.