What’s in a Name? To Donors, Quite a Bit

Apparently Shakespeare was wrong. At least in the nonprofit world, there is quite a bit to fight over with respect to a name—donor names specifically.

Controversy has been brewing about the confidentiality of donor names since California Attorney General Kamala Harris began asking nonprofits soliciting donations in the state of California to disclose their Schedule B lists of donors names and addresses to the state. Schedule B of the Form 990, an annual information return filed by many exempt organizations, lists names and addresses for donors who contribute $5,000 or more a year. Under Section 6104(b) of the Internal Revenue Code, that information is specifically not required to be made available to the public. Other than California and New York, most states allow charities to redact or withhold Schedule B information from their charitable solicitation registration filings with the state. Harris has stated that disclosing Schedule B to the state of California was necessary in order to insure compliance with charitable solicitation rules, adequately conduct investigations and protect the citizens of California against charitable fraud.

The Americans For Prosperity Foundation, backed by the conservative billionaire Koch brothers, filed for a permanent injunction against the Attorney General’s new requirement, arguing that disclosing the names of donors to the state was an unconstitutional violation of the First Amendment. Further, they argued that disclosure could subject those donors to reprisals, especially given the state’s track record of systematically failing to maintain the confidentiality of the information. The United States District Court agreed and found that the burden on First Amendment rights was too hefty, especially given the lack of legitimate state interest in having the information and the lack of adequate safeguards for the information. The Attorney General’s office has announced its intention to appeal the injunction to the 9th Circuit Court of Appeals, which previously ruled in favor of the state’s disclosure requirement on the issue of a preliminary injunction late last year. Further, the Supreme Court declined in November 2015 to hear a similar case from the Center for Competitive Politics challenging California’s Schedule B disclosure requirement, which means the 9th Circuit’s rulings in this area look to stand for now.

Faced with a losing battle in the Courts, conservative nonprofit groups have turned to Congress to chip away at required disclosure of donor information. On June 14, 2016, the U.S. House of Representatives passed GOP-sponsored HR 5053, which would block the Internal Revenue Service from having access to Schedule B information. Representative Peter Roskam, the bill’s sponsor, said that the IRS doesn’t need to know donors’ identities to do its work and that this bill would enable nonprofits to expend less of their precious resources on tax administration and more on their charitable missions.

Fred Wertheimer, president of the election watchdog group Democracy 21, points out that with nonprofits becoming increasingly active in politics, to the tune of over $500 million in federal elections since 2011, “what the House Republicans on the committee are doing is taking a major campaign-finance problem and making it worse.” In fact, some argue that the new law would enable foreign interests to donate anonymously to domestic nonprofits in order to influence political campaigns, making the prohibition on foreign money in politics all but meaningless.

As the battle lines are forming over HR 5053 in the Senate, one thing is for sure, progressives want to make the fight about protecting the integrity of U.S. elections. In their opinion, money donated under any other (anonymous and possibly foreign) name doesn’t smell nearly so sweet.

For more information on nonprofits’ increased role in politics see our previous blog post here.

For bill tracking on HR 5053, Preventing IRS Abuse and Protecting Free Speech Act, click here.

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