The Treasury Department and the Internal Revenue Service announced this week that the IRS will no longer be requiring certain tax-exempt organizations to file personally identifiable donor information with their tax returns.
The new regulation does not affect the statutory reporting requirements that apply to tax-exempt groups organized under section 501(c)(3) or section 527, but it relieves other tax-exempt organizations of an unnecessary reporting requirement that was previously added by the IRS.
IRS Targeting Scandal
Remember the targeting scandal involving the IRS and former director of the Exempt Organizations Unit Lois Lerner? It came about when the IRS admitted that it had singled out conservative groups for extra scrutiny on their tax-exempt status applications.
The announcement this week regarding collecting the personal data has a connection to that story.
According to the Treasury Department, if the IRS is no longer collecting information that isn’t necessary for the agency to enforce tax laws, there is less risk that the personally identifiable information will be inadvertently disclosed or misused, thereby better protecting taxpayers.
The Treasury Department specifically referenced the targeting scandal in its press release about the new regulations:
…conservative tax-exempt groups were disproportionately impacted by improper screening in the previous Administration, including what the Treasury Inspector General for Tax Administration concluded were inappropriate inquiries related to donors. Ending the unnecessary collection of sensitive donor information will reinforce the reforms already implemented by the IRS in the wake of the political targeting scandal and enhance public trust in the agency.
“Americans shouldn’t be required to send the IRS information that it doesn’t need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area,” said U.S. Treasury Secretary Steven T. Mnuchin.
“It is important to emphasize that this change will in no way limit transparency. The same information about tax-exempt organizations that was previously available to the public will continue to be available, while private taxpayer information will be better protected. The IRS’s new policy for certain tax-exempt organizations will make our tax system simpler and less susceptible to abuse.”
Reasons for the Change
In addition to better protecting the personal data of taxpayers, the Treasury Department said the change was being made because the IRS has no need for the data in administering the tax code.
Also, the new policy will help save both private and government resources. The Treasury Department noted, “On the taxpayer side, the previous policy added needless paperwork. On the government side, the IRS has been forced to devote scarce resources to redacting donor names and addresses (as required by federal law) before making Schedule B filings public.”
Summary of New IRS Policy
- Tax-exempt organizations described by section 501(c), other than section 501(c)(3) organizations, are no longer required to report the names and addresses of their contributors on the Schedule B of their Forms 990 or 990-EZ.
- These organizations must continue to collect and keep this information in their records and make it available to the IRS upon request, when needed for tax administration.
- Form 990 and Schedule B information that was previously open to public inspection will continue to be reported and open to public inspection.
- The Internal Revenue Code expressly governs the tax-return reporting of donor information by charities that primarily receive tax-deductible contributions (under section 501(c)(3)) and political organizations (under section 527). The IRS action today does not affect those organizations.