Donor Disclosure Regs Do More Harm Than Good, Group Says

December 9, 2019

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Re:Issue One's comment in response to Internal Revenue Service's "Guidance Under Section 6033 Regarding the Reporting Requirements of Exempt Organizations" 84 Federal Register 47447 (September 10, 2019) [IRS-2019-0039]

Dear Commissioner Rettig:

Issue One respectfully submits this letter in response to the advance notice of proposed rulemaking (ANPR) from the Internal Revenue Service (IRS) regarding its consideration to remove certain reporting requirements of exempt organizations. Issue One strongly opposes this proposal to decrease transparency for § 501(c) nonprofit organizations by no longer requiring names and addresses on Schedule B of Forms 990 or 990-EZ. Removing these requirements would make it easier for foreign agents to interfere in United States elections, obscure tax law violations, and prevent states from adequately tracking suspicious activity.

Over 40 years ago, the IRS realized that it needed more information to effectively enforce the laws governing tax-exempt § 501(c) organizations — such as limitations on political activity and the prohibition on using such organizations for personal benefit. Specifically, it needed information about the identities of persons who contributed a substantial amount of money ($5,000 or more) to each tax-exempt organization. The IRS created Schedule B to acquire this information, so it could more effectively enforce the law. As a former IRS official who spent over 40 years at the IRS stated to the Washington Post, “the ability to begin by looking at large donations — whether tax deductible or not — was a useful tool in pursuing the possibility of corruption.”¹

Since the IRS began to include Schedule B in Forms 990 and 990-EZ, its relevance has only grown. Agents of foreign adversaries have illegally infiltrated our elections to spread disinformation and sow discord between Americans. Experts agree that this threat increases with each US election.²

Unfortunately, Congress has not yet passed additional legislation to protect our elections from foreign interference. However, under the current regulation, malign foreign actors are dissuaded from contributing to tax-exempt organizations for illegally foreign-funded political activity because those organizations must share substantial donors' identities with the IRS. Without Schedule B transparency, it would be extremely difficult for the IRS to notice when these types of violations occur. In a climate of ongoing foreign attacks on the United States, it would endanger our country to take away one of the few regulations that deter foreign actors.

Similarly, under the proposed rule change, it would become much more burdensome to uncover tax law violations. The IRS often relies on Schedule B reporting to ensure that 501(c) organizations are complying with the tax code. This is particularly helpful when harmful actors obscure their illegal activity by operating through multiple organizations. Without access to donor information, and the ability to trace contributions through multiple organizations, it would be nearly impossible to uncover tax law violations and other illegal activity like tax fraud and terrorist financing.

These concerns are not just theoretical. People have used § 501(c) organizations in an attempt to violate the law. In 2016, super PAC representatives offered to help an undercover reporter purporting to be a Chinese businessman illegally give $2 million to their super PAC by first putting the money into a consulting firm, and then through two separate § 501(c)(4)s to avoid public disclosure.³

Finally, proper donor disclosure techniques are fundamental to the capability of state governments to track suspicious activity, thereby ensuring that our democratic republic functions properly. States have relied on Schedule B data since 1976 as a means to find discrepancies between reported income in federal returns and state returns. States, like the federal government, analyze information provided by Schedule B to ensure that nonprofit organizations follow proper tax laws. Additionally, Schedule B saves resources by relieving state governments of gathering information that has already been obtained by the federal government.

While Issue One understands that some people are concerned that the private information provided in the Schedule B forms may be wrongfully leaked, it is important to note that the IRS already has access to private information contained in personal tax forms. For this reason, the IRS is equipped with the tools to protect private information — whether it comes from your personal taxes or the Schedule B of Forms 990 or 990-EZ.

§501(c) organizations receive tax exempt status as domestically-funded social welfare groups. To ensure that these organizations act within this legal definition, the IRS must have access to certain information about them — including their substantial donors. If it does not, we risk that organizations might conduct fraudulent activity, violate tax law, and allow foreign interference in our elections, while making it more difficult for the states to enforce their tax laws.

Issue One believes that we should not accept this risk, and for that reason, we urge you not to adopt the proposed rule.

Respectfully submitted,

Meredith McGehee
Executive Director
Issue One
1401 K St NW, Ste. 350
Washington, DC 20005
202-299-0265