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IRS Rule Change Does Nothing to Protect 501(c)(3) Groups—or Their Donors

July 20, 2018

by Matt Miller
July 20, 2018

This week, the Internal Revenue Service eliminated the requirement that certain nonprofit groups disclose their top donors to the agency. Many kinds of 501(c) groups are affected, but the rule change is significant for exempting 501(c)(4)s, which are nonprofit groups that can, to a limited extent, advocate for and against individual candidates for office. This means that groups ranging from Planned Parenthood to the National Rifle Association can now protect the privacy of people who donate to them. This is a victory for 501(c)(4)s and their donors. But the IRS declined to eliminate the disclosure requirement for 501(c)(3) nonprofit groups—ostensibly because only Congress, and not the agency, can institute such a change.

This means that traditional nonprofits—ranging from us at the Goldwater Institute to a local conservation group—must still file what is called a Form 990 Schedule B each year with the IRS. The 990 Forms of all nonprofits have long been publicly available. But Schedule Bs, which include lists of organizations’ top donors, are shielded from public disclosure by law.

So why are 501(c)(3)s so worried?

To answer this question, consider two things: (1) the risk that a Schedule B will be leaked, and (2) the harm that will be caused if a leak occurs.

On the risk side, nonprofits are concerned that their Schedule Bs will not be kept confidential by the government employees to whom they are disclosed. Any government employee who discloses a Schedule B can face civil penalties and up to five years in prison. Yet leaks do happen. The most high-profile case occurred in 2012 when the IRS leaked the Schedule B of a group called the National Organization for Marriage to the organization’s ideological opponents at the Human Rights Campaign. This was not inadvertent. Eventually, the IRS agreed to pay NOM $50,000 to settle its lawsuit against the government.

What happened to NOM is not a one-time occurrence. Just last month, a reporter for the Daily Beast published the Schedule B of the American Conservative Union on Twitter. The threat created by Schedule Bs is real and will only increase as those documents fall into the hands of ever more government employees. Nonprofits are right to be concerned, and now some attorneys general, from New York to California, are also demanding that these groups turn over their Schedule Bs to state officials, which only adds to the risk that those documents will eventually be made public.

On the harm side, ideological harassment and intimidation is a well-documented and growing problem. Employees and donors of nonprofit groups have received death threats and had their cars vandalized. People attending political rallies have had rocks and bottles thrown at them. Political bloggers have been “swatted,” meaning that fully armed SWAT teams have descended on their homes after prank callers claim—falsely—that someone is in danger inside. Politicians are even getting in on the action. President Trump has encouraged supporters to “knock the crap out of them [protesters], would you? … I promise you I will pay for the legal fees,” and has said that “[p]art of the problem … is nobody wants to hurt each other anymore.”  On the other side of the aisle, Rep. Maxine Waters has expressly called for the harassment of Trump administration employees, even when those employees are going about their private lives in restaurants or movie theaters.

The continuing requirement that 501(c)(3) groups submit a Schedule B to the IRS every year will only add fuel to this growing fire. History shows us that Schedule Bs will be leaked, even though the leaker faces potential prison time for doing so. And history also shows that ideological harassment will continue, if not grow, in the coming decades.

All Americans should have the ability to support causes they believe in without being afraid that their opponents will harass and intimidate them for doing so. That requires a degree of anonymity, which is protected by the First Amendment. Disagreement is important to a functioning republic. Harassing people in movie theaters, slashing their car tires, and issuing death threats are not.

Government demands for Schedule B information threaten the First Amendment rights of nonprofits and their donors—whether classified as 501(c)(3)s or (c)(4)s. Once a group’s Schedule B is made public, the toothpaste is out of the proverbial tube. There is no going back for that group or its donors. If the IRS lacks the authority to act, then Congress should do so by eliminating this latent—but very real—danger to America’s nonprofits.

Matt Miller is a Senior Attorney at the Goldwater Institute.



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