Supreme Court to Hear Challenge to Nonprofit Donor Disclosure Case

Arent Fox
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Arent Fox

Currently, charities are only required to disclose the names of their major donors to the IRS – which must keep them under seal – on federal Schedule B.
 

The Supreme Court is set to schedule arguments in April for two long-awaited challenges to the State of California’s requirement that charities disclose their donors to the state. Currently, charities are only required to disclose the names of their major donors to the IRS – which must keep them under seal – on federal Schedule B. This disclosure requirement allows the IRS to internally cross-check donors claiming a charitable deduction with the charities’ list of actual donors.

California (plus New York and New Jersey) recently decided they wanted this IRS donor information as well and forced charities to attach their federal Schedule Bs to their state nonprofit income tax returns. The reason given for this new disclosure, under a regulation enforced by then-California Attorney General Kamala Harris, was to protect consumers from fraud and the misuse of their charitable contributions. Critics replied that this was instead a back-door way for the state government to get the names of donors that may not support the state’s various regulatory initiatives.

One of the plaintiffs in the case, the Thomas More Law Center, which describes itself as defending and promoting religious freedom, sued by arguing that California’s policy is an invasion of their donors’ privacy. Another plaintiff, the Americas for Prosperity Foundation, won a permanent injunction against California’s requirement which was later overturned by the Ninth Circuit. The two cases have been consolidated and more than 60 organizations filed amici briefs urging the court to hear the case. Amici from both liberal and conservative groups are organizing again this month and filing briefs – due by March 1 – urging the high court to reverse the Ninth Circuit’s decision.

In fact, these cases have their roots all the way back in 1958 in the seminal case of NAACP vs. Alabama, in which the Supreme Court struck a local ordinance compelling the NAACP to publish a list of its local members. There, as in the cases at bar, the members (or donors) expressed a genuine fear for their safety or privacy and believed that if their names were known to the state, the government could retaliate.

Worse is the fear that the organization’s membership list is leaked to the public, as was the case in 2009 when the California AG’s office mislabeled 1,800 confidential Schedule B filings as “public” and they were available for viewing with an Internet search.

Releasing the names of your opponents’ supporters with malicious intent – often called doxing – has been condemned by some as the new way to intimidate people from joining (or not contributing to) the unpopular side of an argument. That is why the plaintiffs in these cases claim that California’s donor disclosure law violates their First Amendment protection of free speech and association. Interestingly, the federal government recently got rid of Schedule B for issue advocacy groups (501(c)(4) organizations) because it determined it had no need for the information, or that it could be subject to misuse, as was alleged during the IRS Tea Party scandals. This leaves 501(c)(3) charities as the only entities that still have to report this donor information.

California won at the Ninth Circuit because it successfully argued the donor information is necessary to determine whether a charity is truly engaged in a charitable purpose or is instead violating California law by engaging in self-dealing, and by claiming the plaintiffs could not present sufficient evidence that such disclosure would lead to threats, harassments, or reprisals against donors.

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.

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