Since 2000, the Internal Revenue Service has required tax-exempt organizations to file lists of substantial donors on Schedule B to their Annual Information Returns, Form 990. In originally preparing Schedule B, the IRS was attempting to protect donors’ private information from disclosure. Prior to 2000, tax-exempt organizations’ donor lists were sometimes disclosed because IRS officials did not recognize the submitted donor lists as non-disclosable, protected information. The Schedule B was intended as a standard form easily recognized by IRS employees as not disclosable.
Unfortunately, Schedule B did not protect donors’ information. In fact, it became a way for state governments and outside organizations to demand information they weren’t allowed to have. As a result, state governments put thousands of donor records on the Internet, and outside organizations began to use the disclosed information for purposes other than tax administration, such as “outing” donors for supporting disfavored organizations.
In September 2019, the IRS published a Notice of Proposed Rulemaking, asking for public comments on a new plan for Schedule B. Instead of requiring all organizations to submit the names and addresses of donors, the IRS proposed not to include the names and addresses. The IRS noted in its NPRM that it did not need or use the donors’ names and addresses for tax administration, so its proposal wouldn’t cause it any difficulties. Thousands of comments were submitted to the IRS, the vast majority in favor of the update to the IRS’s rules.
Today, the Public Policy Legal Institute submitted an 18-page set of comments, strongly supporting the proposed update, but offering five major recommendations for improvements in how the rule was explained.
From the PPLI Comments:
Since 1976, congressional policy has been that taxpayer information is to be kept confidential except in “limited situations.” The Supreme Court ratified that interpretation in 1987 against a request to release even redacted information. In 2000, facing repeated instances of Service personnel releasing this confidential information, the Service adopted Schedule B, as an attempt to clearly identify for its own employees the information that could not be released.
But Schedule B failed, in large part because Service employees reversed the congressional and Supreme Court interpretation in a 2001 staff memorandum. In 2002, the Service decided just to ignore its own mistake and require people to request the information twice. That non-compliant policy has continued since, with the requests for non-compliant, non-tax administration-based use of Schedule B increasing. Those increasing requests have caused untold, but very real damage to tax-exempt organizations and individuals, with unrebutted court records of harassment and donor loss of privacy caused directly by the requests of state governments and Service leaks.
This has been the confused and confusing situation for almost twenty years, until this proposed update. In this proposed update, the Service would cut the Gordian knot by simply not requiring the name and address to be filed. The stated rationale is that the information is not needed, but the real answer is that the proposed update finally returns the Service position to what it was after [the Supreme Court’s decision in] Scientology and its progeny explained the correct interpretation of the legislative language and intent.