December 10, 2018

S.J. Res. 63 – Disapproval of Donor Disclosure Rule

NOTEWORTHY

Background: Senator Tester introduced S.J. Res.64, a joint resolution of disapproval under the Congressional Review Act of 1996. If enacted, the resolution would nullify Treasury Department guidance that limits the donor information that tax-exempt and certain non-exempt organizations must give to the Internal Revenue Service on their tax returns. It has 35 co-sponsors, all Democrats.

Floor Situation: The Senate may consider S.J. Res. 64 soon. A vote on the motion to proceed has a simple majority threshold.

Executive Summary: The resolution disapproves of the Treasury Department’s guidance announced on July 16, 2018, which would no longer require 501(c) organizations, except 501(c)(3) organizations, to disclose donors’ names and addresses in their tax returns. Before the new guidance, the IRS was responsible for redacting this personal information before making the tax returns public. This joint resolution of disapproval would overturn the new guidance and effectively reinstate the requirement to disclose donors.

OVERVIEW OF THE ISSUE

On July 16, Treasury released new guidance to remove the requirement for certain tax-exempt organizations to list donors’ names and addresses on Schedule B of their Form 990 in their tax returns. The revised reporting requirements apply to tax returns for 2018 and future years.

Previously, the IRS required tax-exempt organizations under section 501(c) of the tax code to list this donor information if a donor gave $5,000 or more, along with the contribution amounts. These groups include (c)(4) civic leagues and social welfare organizations; (c)(5) labor, agricultural, and horticultural organizations; (c)(6) business leagues and chambers of commerce; and others. Entities considered to be (c)(7) social clubs, (c)(8) fraternal beneficiary societies, and (c)(10) domestic fraternal societies had to report the names of donors giving more than $1,000 for religious, charitable, or certain other purposes. Because these tax returns must be made public, the IRS would redact the donors’ personal information.

The new guidance relieves tax-exempt organizations, except 501(c)(3) organizations, of the requirement to report their donors’ names and addresses on their tax returns. These organizations still will report contribution amounts and other required information, and they must keep records of donor information in case the IRS audits them.

Charities and groups under 501(c)(3) of the tax code are required by statute to report donor information to the IRS on their tax returns, so they are not affected by the new guidance. Additionally, the guidance does not change section 527 political organizations’ reporting requirements.

As Treasury noted in announcing the new guidance, only 501(c)(3) organizations are required by statute to disclose, among other things, the total donations, names, and addresses of substantial donors. Through regulation, the IRS broadened the requirement to include other types of tax-exempt groups.

S.J. Res.64 would stop Treasury’s new guidance from being in force or having any effect. Senator Tester introduced the disapproval resolution under the CRA, which allows Congress to overturn the entirety of a federal rule using “fast track” parliamentary procedures. Once 20 days have passed since Congress receives a final rule, a senator may file a discharge petition signed by at least 30 senators and therefore discharge a committee of the disapproval resolution. Then a senator may move to proceed to consider the resolution, a non-debatable motion. The MTP to the resolution requires a simple majority vote. Debate on the resolution is limited to up to 10 hours, and passage also requires a simple majority vote.

CONSIDERATIONS ON THE BILL

Under existing statutory authority, the IRS commissioner may relieve organizations from donor reporting requirements if the commissioner “determines that such returns are not necessary for the efficient administration of the internal revenue laws.” Treasury issued the new guidance under this authority, saying, “The IRS has no tax administration need for continuing the routine collection of donor names and addresses as part of an exempt organization’s annual tax return.” In announcing the new guidance, Secretary Steven Mnuchin commented: “Americans shouldn’t be required to send the IRS information that it doesn’t need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area.”

Treasury also cited the higher compliance costs the prior policy imposed on private organizations, IRS time and resources expended to redact the personal information, and the risk of unintentional public disclosure of donors’ personal information. Treasury said that personal information had been inadvertently released before. No longer requiring exempt entities to report this sensitive information about donors will reduce the likelihood of inadvertent privacy breaches.

The bill’s sponsors have described maintaining transparency as a reason for introducing the disapproval resolution. Under the new reporting requirements, the non-redacted information that is currently made public still will be reported on tax forms and made public. The guidance does not change public availability of information about a nonprofit in any way.

Supporters of the bill also argue that relaxed disclosures would assist foreign donors in illegally influencing elections through 501(c) groups while avoiding detection. However, the IRS can still demand donor information from 501(c)(4) groups if it suspects illegal interference. Moreover, it is unlikely that the requirement to list contributors would be effective in stopping any foreign conspiracies. No foreign actor would list himself in the first place, nor allow himself to be listed, since it would essentially constitute an admission of guilt. 

Opponents of the bill further note that the compelled disclosure of donors has a chilling effect on freedom of speech. The Supreme Court held in 1958 that the Constitution protects the anonymity of members of political groups when disclosure would effectively curtail their political activity. This arose in the context of civil rights, when the state of Alabama sought lists of NAACP agents and supporters. Recognizing that disclosures had been used to repressive ends in the past, the court disallowed Alabama’s disclosure demands. Opponents of the CRA point to leaks of taxpayer information from the IRS as a likely consequence of continuing 501(c) donor disclosure requirements. Given IRS’s recent history relating to 501(c) oversight, this kind of disclosure and the subsequent retaliation by political opponents would have a chilling effect on political speech, the bill’s opponents say.

ADMINISTRATION POSITION

The Trump administration continues to uphold the new guidance.

COST

As of publication, the Congressional Budget Office has not published a cost estimate.

AMENDMENTS

Amendments are not permitted for CRA joint resolutions of disapproval during Senate floor consideration.