IRS Passes Final Rule Change: Will No Longer Collect IDs of Contributors to Most Tax-Exempt Orgs

Chris Gaetano
Published Date:
May 27, 2020
The IRS has released final regulations that, among other things, no longer require that the names and addresses of substantial contributors to most tax-exempt organizations be reported to the federal government. The only type of organization for which this requirement remains will be 501(c)(3) charities.

While the IRS had previously tried to implement this change in 2018, a court case faulted the regulation due to lack of a public comment period. The IRS re-released its proposal for comment in 2019 before coming to a final decision.

It acknowledged that many commenters raised concerns about how this change would affect the enforcement of campaign finance laws, particularly where they concern the use of tax-exempt entities, including by special interests, to anonymously influence elections and enable improper interference in U.S. elections. Commenters also raised concerns that the change would make it more difficult to detect foreign spending or federal contractor spending on U.S. elections, in violation of federal campaign finance laws. The IRS, however, dismissed these concerns, saying that it is not required to enforce campaign finance laws. The IRS also said that in the event that a tax-exempt organization was involved in a potential violation, it wouldn't release the donors' identities anyway, since the investigation wouldn't be tax-related. The service said that it is allowed to do so only under very narrow circumstances.

With this in mind, the IRS said that the change won't make that big a difference anyway. It explained that while it does currently collect this information, the information is generally considered confidential and isn't available to the public at large, so what the public does and does not know will remain largely unchanged.

The IRS also noted that the new regulations require tax-exempt organizations nonetheless to keep the names and addresses of major donors on hand themselves, and so if the IRS needs the information it will still be able to get it. While some commenters suggested that requesting the information on examination could be a “tip-off” to the organization that it is under additional scrutiny, leading the organization to hide assets and destroy or falsify evidence, the IRS said these fears are misplaced, as it likely will have enough information just from the Form 990 or 990-EZ, although it did not address the potential for organizations to simply destroy evidence.

The new regulations do, however, cite concerns about privacy and disclosure, as well as public harassment and "Ideologically motivated" staff leaks as part of why it was making this change. While the IRS is legally required to keep the names and addresses of donors confidential, it noted that the agency has experienced data breaches and leaks in the past, and so it reasoned that if it didn't have this information in the first place, donors could be safe from inadvertent disclosure. It also cited administrative burden, saying that it's onerous for organizations to be expected to report the names and addresses of all their substantial donors. While these organizations are still required to maintain this information themselves, the IRS said not having to input it into a form and send it to the service will reduce compliance costs.

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