Donor disclosure is lifted for some tax-exempt groups
The Trump administration will end a long-standing requirement that certain nonprofit organizations disclose the names of their large donors to the IRS, a move that will allow some political groups to shield their sources of funding from government scrutiny.
The change, which has been long sought by conservatives and Republicans in Congress, will affect labor unions, social clubs and, most notably, many political groups like the National Rifle Association and the Koch network’s Americans for Prosperity, which collect what is known as “dark money.”
Treasury officials said the reporting change would protect privacy and reduce compliance costs for nonprofits, and that the IRS could still request donor information from groups in the rare event that it was needed for tax scrutiny.
“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,” Treasury Secretary Steven Mnuchin said in a statement Monday evening.
But critics denounced the measure, saying it increases the likelihood of illegal donations from both domestic and foreign contributors.
“There’s a lot to this administrative rule under the semblance of reducing paperwork,” said Steven Rosenthal, at the nonpartisan Tax Policy Center in Washington. “It adds another layer of opaqueness to the tax-exempt funding.”
Political nonprofits will still have to collect the information, but will not be required to turn it over to the government unless they are audited.
Previously, nonprofits such as unions and organizations classified as 501(c)(4) groups were required to report to the government the names of donors who contributed more than $5,000 in the span of a year. That information was redacted on the publicly viewable forms the groups file annually, though amounts of donations remain visible.
Nonprofits that exist primarily to influence political campaigns, including 501(c)(3) and 527 organizations, will still be required to report the names of large donors, as will charities that accept tax-deductible contributions.
Officials with the Treasury Department said the move was driven in part by the IRS’s inappropriate targeting of political groups during the administrations of Presidents George W. Bush and Barack Obama. The IRS inspector general found that both conservative and progressive groups were targeted and that IRS officials inappropriately sought information on donors to Tea Party groups as well as to liberal groups.
But conservative groups have also expressed concern that the donor information could fall into the wrong hands and be released for partisan reasons.
Republicans hailed the move, with Mitch McConnell, R-Ky., the Senate majority leader, on Tuesday calling the decision “particularly welcome news to those of us who intently are focused on defending the First Amendment, for those of us who over the years have raised concerns during the last administration about activist regulators punishing free speech and free association. It’s a straightforward, common sense policy decision.”
But Democrats blasted the move en masse, with Sen. Ron Wyden of Oregon, the ranking member on the Finance Committee, saying the decision would allow “anonymous foreign donors to funnel dark money into nonprofits.”
Sen. Jon Tester, D-Mont., called it “the swampiest, darkest, dirtiest decision.”