Following discussions with participants in the First Tuesday Lunch Group, a bipartisan discussion group of public policy practitioners, we have revised The Curious History of Schedule B legal analysis published last week into a new one, called “Revising the Nixon ‘Enemies List,’ Using IRS Form 990, Schedule B.” The new analysis is longer and more detailed, with additional discussion of how useful and effective Schedule B to Form 990 actually is. In particular, we have added specific looks at arguments already presented in court by the California Attorney General as justification for demanding that any charity that wishes to operate or raise funds in California reveal its donors.

Some excerpts:

• Schedule B is one of the simplest tax forms: a list of names, addresses and other details which could identify those who have given large amounts to charities. Schedule B’s content makes it one of the most highly-protected federal tax forms because donor information, “if in the hands of the IRS at all, should be categorically sheltered from disclosure.” The Attorney General does not comply with federal data security requirements and usage restrictions, and so can’t get Schedule B from the IRS; he must ask for it directly from the charity.
• The charities are challenging the Attorney General’s demands as violating the First Amendment’s freedom of speech and association. They have shown that the Attorney General’s office has a long and sordid history of leaking tax information on the Internet, endangering their donors’ safety and livelihoods.
• The Attorney General claims to need the Schedule B to enforce California’s laws against fraud and abuse of charitable status because it would be more “efficient.” But the Attorney General did not mention to the lower courts, and the parties did not raise, a December 9, 2019, letter that he and 19 other Attorneys General sent to the IRS commenting on proposed regulations on Schedule B. The Attorneys General Letter indicated that the Attorney General actually had knowledge of, and intentions to continue, use of Schedule B for purposes far different from the limited charitable law enforcement he told the courts was his sole purpose in obtaining the Schedule B forms.
• Most prominent among those other purposes was to use Schedule B to fight against “dark money” organizations, which, by law, are not charities: “corporations, wealthy individuals, and special interests seek to influence politics without leaving fingerprints. … The revised donor reporting requirements that the IRS now proposes are certain to make federal and state review of this spending far more difficult if not impossible.”
• In other words, the Attorneys General of several states wanted to use Schedule B as a new kind of “enemies list,” targeting those who, entirely lawfully, want to enjoy the confidentiality promised under federal tax law.
• Schedule B was a well-intentioned, but ultimately unsuccessful attempt to protect donors from disclosure. A significant number of State Attorneys General have indicated that they view Schedule B not only as a source of taxpayer information that federal law protects from disclosure, but as “a powerful tool” to use as they choose, no matter what federal law forbids. This difference of opinion sets up a variety of constitutional clashes over rights of individuals, organizations, and States themselves, under the First (freedom of speech and association), Fourth (freedom from unreasonable searches and seizures) and Sixteenth (tax) Amendments.
• Not all these clashes are present in the cases pending before the Supreme Court. The lower courts and the parties have limited their briefings to the First Amendment issue of whether the State can request donor lists knowing that they will inevitably injure donors. The charities’ evidence of harassment and injury is strong, but disputed by the California Attorney General and in the Ninth Circuit Court of Appeals decisions.
• Like a movie monster rising from the grave, Schedule B is essentially obsolete and unwanted. It injures people and undermines taxpayer confidence that is essential to support government. It is not essential or efficient in regulating charities. It raises unnecessary constitutional questions. More efficient and targeted methods are already available than the upfront collection of thousands of charities’ donors’ information.
• The Supreme Court should use long-established First Amendment interpretations to help protect charitable donors, the organizations that depend on them, and the interests of the federal tax system in voluntary compliance. Otherwise, “enemies lists” may not only be revived, but will multiply.

To read or download the full analysis, click here:

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