Form 990-Schedule B: Can states demand your confidential donor information - even if they do not need and cannot protect this information?

Date: July 27, 2016

Originally published in Association TRENDS, May-June 2016.

In the case of California, a federal judge recently ruled NO! The Court held that requiring nonprofits to file their confidential Schedule B donor information in order to register to solicit contributions unduly burdened First Amendment rights and was unconstitutional “as-applied” to the organization that challenged this requirement.

Generally speaking, nonprofit organizations annually must file IRS Form 990-Schedule B in which they must disclose – on a confidential basis – the names of their donors that contribute $5000 or more. Groups may redact the names of their donors in their Public Inspection version of IRS Form 990 and the IRS does not provide Schedule B to online services like Guidestar. Although the IRS is required by statute to maintain this confidential donor information in strict confidence, there have been reported instances of inadvertent and unlawful disclosures by the IRS in the past few years. No similar statutory or legal authority exists to protect Schedule B information at the state level.

In the California case, after a full bench trial, the Court concluded that the record “lack[ed] even a single, concrete instance in which pre-investigation collection of a Schedule B did anything to advance the Attorney General's investigative, regulatory or enforcement efforts.” The Court also found that the Attorney General's “current confidentiality policy cannot effectively avoid inadvertent disclosure.” At the same time, the Court “heard ample evidence” that the group and its “employees, supporters and donors face public threats, harassment, intimidation and retaliation once their support and affiliation with the organization becomes publicly known.”

The growing trend to require confidential Schedule B donor information by states like California and New York is of grave concern to organizations whose individual and corporate donors may decline to provide support if they fear their identities can become public. This decision also comes in the wake of a broader debate whether advocacy and political groups should be required to publicly disclose their donors or whether they are entitled to the same constitutional protections. Such disclosure requirements oftentimes are unknown to nonprofits and may be contrary representations to protect the identities of both individual and corporate supporters, so organizations should always check carefully before commencing new activities at the state and local level.

For now, the immediate question is whether California and other states can continue to broadly request confidential Schedule B donor information that they do not need and cannot protect. Should organizations have to protest and litigate to protect their constitutional rights on a case-by-case basis?

IRS officials have indicated publicly that the IRS is considering doing away with Schedule B and there is a bill pending in Congress that would make sure this happens. If the IRS or Congress eliminates Schedule B, that will resolve the problem!