IRS Releases Proposed Regulations on Keeping Tax-Exempt Organization Donors Secret

Chris Gaetano
Published Date:
Sep 9, 2019

The IRS and the Treasury Department have released proposed guidance, in response to a court defeat, that would generally keep secret the identities of donors to tax exempt organizations, as well as give the Treasury secretary broad discretion on further information that the service would like to remain confidential. 

The proposed regulations would clarify that, in general, tax exempt organizations do not need to disclose the names and addresses of substantial donors (generally those who donate $5,000 or more per year) unless they are 501(c)(3) organizations, which are generally public charities; section 527 organizations, which are generally political organizations; or private foundations. The proposed regulations also grant the IRS commissioner "broad discretionary authority to determine what information is reported and to grant relief, in whole or in part, from the annual filing requirements of tax-exempt organizations if it is determined that the information is not necessary for the efficient administration of the internal revenue laws." 

Overall, the IRS does not believe that the names and addresses of donors are necessary to carry out internal revenue laws, including provisions dealing with transfer taxes. A requirement to annually report such information, the proposal said, increases compliance costs for organizations and consumes IRS resources, as the service would need to redact this information according to other regulations. It noted that it still has the ability to demand such information on an as-needed basis during the course of an investigation anyway. 

The IRS first announced these regulations in 2018, a move that was sharply criticized, as it was seen by some as encouraging dark money political contributions by effectively stymieing a key accountability tool for tax exempt organizations. In the proposal, the IRS acknowledged these concerns, but said that it is not the IRS's job to enforce campaign finance laws. 

A federal judge later struck down the rule, though largely on technical grounds, as the IRS did not follow the proper procedure when creating the measure. In particular, the judge pointed out that the government did not go through the public comment process. The most recent proposal represents the IRS going through this public comment process in response to the ruling, which it referenced in the background section. 

Members of the public have 90 days to issue comments to the IRS. 

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