Court Affirms California Attorney General’s Demand for Confidential Donor List

by Seyfarth Shaw LLP
Contact

shutterstock_224796712Unwelcome news for charities concerned with donor confidentiality

A recent court ruling1 upheld the position of the California Attorney General (AG) requiring that charities located or operating in California provide a copy of their unredacted Form 990 Schedule B, including the names, addresses and contribution amounts for all donors listed.  While the AG has indicated that the information will not be made publicly available, the ruling is unwelcome news for charities concerned about protecting donors’ identities.  The collection of sensitive donor information from charities appears to be a growing trend by state Attorneys General.  Affected charities, including out-of-state charities soliciting or otherwise operating in California should review their donor confidentiality policies and disclosures to ensure that their donors are aware of such requirements.

Regulation of Charities Located or Operating in California

Most California charities and certain out-of-state charities are required to register and file an annual report (Form RRF-1) with the AG’s Registry of Charitable Trusts.  Religious organizations, educational institutions, hospitals and health care service plans are exempt from this registration and reporting.

A copy of the charity’s annual return (Form 990) must be included with the annual report.  The AG recently began treating annual reports submitted without Schedule B (or with a redacted Schedule B) as incomplete.  Failure to file a complete report generally results in penalties, fees and the loss of California income tax exemption.

Several states, including New York, have a similar filing requirement.  Both the California and New York AGs note that their policy is not to disclose Schedule B to the public.  However, there is no guarantee that their disclosure policies will not change in the future and it is unclear if the donor information, once in the possession of a state’s AG, would be subject to a request for disclosure under that state’s public records act.

Schedule B – Donor Disclosure

Schedule B to the Form 990 is used to disclose to the IRS the reporting organization’s significant donors (generally those who contribute over $5,000 in cash or property), including their names, addresses, and contribution amounts.  Tax-exempt organizations are generally required to make available for public inspection and copying their three most recent annual returns, including copies of all schedules, attachments and supporting documents filed with these returns.  Most such returns are posted and publicly available at no cost on third-party websites, such as Guidestar.org.

However, except for private foundations (Form 990-PF filers) and section 527 political organizations, public disclosure of the names and addresses of contributors set forth on Schedule B generally is not required, and the Schedules B of those organizations typically do not appear when posted online.

The Center for Competitive Politics, a Virginia nonprofit registered with the California AG, challenged the AG’s unredacted Schedule B filing requirement.  It argued that the disclosure violates its and its supporters’ First Amendment rights to freedom of association and that certain nondisclosure rules under federal law preempt the state requirement.

The Ninth Circuit affirmed an earlier decision to deny the Center’s motion for a preliminary injunction, rejecting the Center’s arguments and concluding that the disclosure requirement bears a substantial relation to a sufficiently important government interest and is facially constitutional.2

However, the Court left open the possibility that the Center could show a reasonable probability that the compelled disclosure of its contributors’ names will subject them to threats, harassment or reprisals that would warrant relief on an “as-applied” challenge.  Such a challenge, Americans for Prosperity Foundation v. Harris,3 is pending in the Ninth Circuit.  So, the Court may soon carve such an exception out of California’s filing requirement, or not.

Out-of-State Charities with a California Presence Subject to Disclosure

Out-of-state corporations that are (1) “doing business” in California for charitable purposes or (2) “holding property” in California for such purposes are subject to the AG’s registration and filing requirements, as well as a whole host of other regulations generally applicable to California charities.4

“Doing business” is not a defined term, but generally requires that a corporation conduct some systematic or ongoing activity in California.  The AG has issued limited examples of activities that, if conducted in the state, would constitute doing business in California, including: (1) soliciting donations by mail, by advertisements in publications, or by any other means from outside of California, (2) holding board or membership meetings, (3) maintaining an office, (4) having officers or employees who perform work, and/or (5) conducting charitable programs.  Grantmaking in California, by itself, generally is not considered doing business in California.

The second basis for subjecting an out-of-state charity to the reporting and registration requirements is “holding property” in California for charitable purposes.  Unfortunately, the AG’s office has not issued guidance on the distinction between holding property for charitable purposes and holding property for investment or other non-charitable purposes other than a brief statement on its website that maintaining “financial accounts or investments at an office of a financial institution located in California” does not constitute doing business in California.

Out-of-state charities that may meet the above requirements and are not currently registered with the AG’s Registry of Charitable Trusts may wish to consider contacting local counsel for advice regarding their California operations to avoid or minimize potential penalties.

Conclusion

The recent Center for Competitive Politics decision exemplifies what we expect to be a growing trend by state Attorneys General to demand sensitive donor information from charities operating or soliciting in those states.  Charities should continue to heed the Schedule B instructions and not include Schedule B in filings with states that do not require it, as those states may inadvertently disclose the charity’s donor information to the public.5

___________________________

1Center for Competitive Politics v. Harris, No. 14-15978 (9th Cir. May 1, 2015).

2 On May 15, 2015, the Center filed with the U.S. Supreme Court (Justice Kennedy) an application for an injunction to block the disclosure pending the filing and disposition of a petition for a writ of certiorari. In a setback to the Center, the application was denied without prejudice to renewal in light of any further developments.

3Americans for Prosperity Foundation v. Harris, No. 2: 14-cv-09448-R-FFM (C.D. Cal. Feb. 23, 2015).

4 For a detailed discussion of California requirements that extend to out-of-state charities, see Mancino, “California Regulation of Out-of-State Charities,” 17 Taxation of Exempts 6 (May/June 2006).

5 Schedule B, Page 5 (General Instructions: Public Inspection), available at http://www.irs.gov/pub/irs-pdf/f990ezb.pdf.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Seyfarth Shaw LLP | Attorney Advertising

Written by:

Seyfarth Shaw LLP
Contact
more
less

Seyfarth Shaw LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.