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CREW Advises Against Adopting Exempt Org Disclosure Regs

DEC. 9, 2019

CREW Advises Against Adopting Exempt Org Disclosure Regs

DATED DEC. 9, 2019
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December 9, 2019

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
U.S. Department of the Treasury
1111 Constitution Avenue, NW
Washington, DC 20224

Re: Guidance Under Section 6033 Regarding the Reporting Requirements of Exempt Organizations (IRS Reg 102508-16)

Dear Commissioner Rettig:

Citizens for Responsibility and Ethics in Washington (“CREW”) respectfully writes to comment on this proposed rule, which threatens to undermine both the IRS's ability to ensure compliance with tax law and the efforts of other law enforcement agencies to detect violations of other laws, such as state and local charity and tax regulations, bans on foreign and other election interference, and others.

For over 40 years, all nonprofits organized under Section 501(c) of the tax code have been required to confidentially report the names and addresses of their “substantial contributors” or donors who give over $5,000 annually.1 For many (and very likely, most) nonprofits, these confidential filings are the only reports filed with any federal agency disclosing their sources of income. As a result, these confidential donor reports offer one of the most efficient ways for law enforcement to identify and investigate potential violations that involve donations to such groups without tipping off implicated organizations. Additionally, these reports can help the IRS identify groups that might be at risk of running afoul of restrictions on private benefit or other provisions of the tax code, or groups that appear to be failing even to keep basic records; as the proposed rule recognizes, groups continue to have a legal obligation to create and retain records of this information, but if they are failing to do so, an IRS audit uncovering this would very likely come too late.

There is good reason to think that illegal donations, including potentially from foreign sources, could flow through such groups, and that law enforcement, including the IRS, could use the disclosures of their sources of funding to identify them. Recently, a settlement2 led to the first major release of dark money sources3 in the post-Citizens United era. That release revealed that, among others, a federal government contractor had been a major contributor to the group, giving nearly $3 million in a single election cycle, money which it by law could not have spent on political contributions.4 In this case, the funding was only revealed after seven years and three lawsuits; because so much time had passed, the group had to turn to a variety of methods to “create an accurate picture of the [group's] finances during the period in question” and it told federal regulators that it is “likely that there are numerous duplicate receipts and expenditures within the documents.”5 The potential use of these types of groups to circumvent legal requirements such as the ban on foreign money in U.S. elections is far from a hypothetical concern, and ensuring they meet their recordkeeping obligations is critical to effective enforcement of the laws governing them.

For these reasons, CREW urges the IRS not to adopt the proposed rule. We further request that the IRS hold a hearing on the proposed rule, which is particularly appropriate given that the consequences of denying other law enforcement authorities this information can only be fully understood by seeking and obtaining information from those other agencies.

Sincerely,

Noah Bookbinder
Executive Director
Citizens for Responsibility and Ethics in Washington
Washington, DC

FOOTNOTES

1Substantial contributors are reported on Schedule B of a nonprofit's annual return, filed on Forms 990 and 990-EZ.

2Conciliation Agreement, In the Matter of Americans for Job Security, MUR 6538R, available at https://s3.amazonaws.com/storage.citizensforethics.org/wp-content/uploads/2019/09/18205844/MUR-6538R-Closing-Letter-to-Complainant-1.pdf.

3Letter from Stephen DeMaura to Jonathan A. Peterson, with attachments, available at https://s3.amazonaws.com/storage.citizensforethics.org/wp-content/uploads/2019/10/25141242/AJS-disclosure.pdf.

4Matt Corley, Hensel Phelps Donations to Pro-Buck Dark Money Group Finally Revealed, Nov. 19, 2019, available at https://www.citizensforethics.org/hensel-phelps-donations-ken-buck/.

5Letter from Stephen DeMaura to Jonathan A. Peterson, with attachments, available at https://s3.amazonaws.com/storage.citizensforethics.org/wp-content/uploads/2019/10/25141242/AJS-disclosure.pdf.

END FOOTNOTES

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