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Guidance Issued on Donor Reporting

July 23, 2018

Laura J. Kenney, CPA, MST
Principal

The Internal Revenue Service (the “IRS” or the “Service”) issued guidance on July 16, 2018, Revenue Procedure 2018-38, that is continuing to fuel a huge flurry of commentary in Congress and in the tax news.

The Service’s new guidance says certain tax-exempt organizations no longer need to report on Schedule B of Form 990 names and addresses of their donors. The types of organizations that are excused from donor reporting include, among others, social welfare organizations, labor unions, trade groups and associations. However, as of this writing, Section 501(c)(3) charitable organizations will still need to report their donors’ information on Schedule B to the Service—only Congress has the authority to change the rule for reporting substantial donors on Schedule B for charitable entities.

A tax-exempt organization is generally required to report contributions from its substantial donors on Schedule B of IRS Form 990. Usually this means contributions of $5,000 or more, but there are other circumstances resulting in different thresholds. Even though Form 990 is publicly available, the names and addresses of donors, and any other donor identifiable information, are not open for public inspection. This is true for tax-exempt organizations except for private foundations, which are not allowed to redact donor information for public inspection.

Starting in tax years ending on or after December 31, 2018, only Section 501(c)(3) entities will continue to be required to report donor information on Schedule B, at least as the law now stands.

Other noncharitable tax-exempt organizations will need to prepare Schedule B without donor names and addresses but will need to continue to keep records in case the IRS would like to inspect the donor information.

Opponents of this new rule believe that donor reporting on Schedule B can:

  • provide transparency regarding potential conflicts of interest and private benefit to substantial donors
  • demonstrate public support status for Section 501(c)(3) organizations
  • disclose if organizations are financed by foreign contributions

Proponents of this new rule are concerned that donor reporting on Schedule B contributes to:

  • donor privacy issues
  • 1st amendment free speech concerns
  • potential donor targeting for their political beliefs

Both groups believe there are potential abuses—some think abuses are potentially prevented by Schedule B and other think abuses are potentially caused by Schedule B.

Currently there’s proposed legislation to amend the Internal Revenue Code to prohibit the IRS from requiring a tax-exempt organization to include the name, address or other identifying information of any contributor—and this would apply to Section 501(c)(3) organizations. We will continue to watch as this issue unfolds, to see if the legislation passes, and will keep you updated.

 

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