Donor Reporting No Longer Required for Non-501(c)(3) Organizations

October 24, 2020 | Article

The IRS released Revenue Procedure 2018-38 on July 16th, which announced that organizations exempt from tax under Section 501(a) of the Internal Revenue Code, other than those classified within Section 501(c)(3), are no longer required to report names and addresses of their donors on Schedule B – Schedule of Contributors as part of Form 990-EZ or Form 990 returns submitted to the IRS. This revised reporting requirement will apply to returns for taxable years ending on or after December 31, 2018.

Previously, all types of tax-exempt organizations were required to provide names and addresses of donors to the IRS as part of an annual tax filing. The threshold for including donors on Schedule B varied, depending on the type of tax-exempt organization. For example, most organizations were to include donors who gave more than $5,000 during the year, but Section 501(c)(7) social clubs, 501(c)(8) fraternal beneficiary societies, and 501(c)(10) domestic fraternal societies were required to include those who gave more than $1,000 during the year.

Exempt organizations are required to make their tax returns available to the general public. While donor information has been disclosed to the IRS on Schedule B, the public inspection copy includes a redacted Schedule B which removes the names and addresses of contributors and only reports the dollar amounts and description of the donation. However, private foundations under Section 509(a), including trusts classified as Section 4947(a)(1), and Section 527 organizations, have always and will continue to be required to provide donor information to the general public on Schedule B of the Form 990-PF. The new rules will eliminate the need to provide this information in the IRS version of the Form 990 for the affected entities. 

Legislation related to this disclosure topic was introduced in 2016 as part of the “Preventing IRS Abuse and Protecting Free Speech Act”. That legislation was more broad-reaching and was intended to revise reporting to exclude names and addresses of donors from all 501(c) organizations. Proponents of that legislation and similar efforts were looking for assistance in safeguarding what they considered to be sensitive data held by the IRS. However, this legislation was never enacted.

According to the new Revenue Procedure, the IRS does not need personally identifiable information of donors reported on Schedule B in order to carry out its responsibilities. The new Revenue Procedure also says that the requirement to report such information increases compliance costs, consumes IRS resources in connection with the redaction of such information, and poses a risk of inadvertent disclosure of information that is not open to public inspection. As a result, these organizations will now file Schedule B with the names and addresses portion blank, like a public inspection copy.

All organizations must continue to keep donor names and addresses in their books and records in case the IRS would request this information as part of an examination or other request. This revised reporting has no impact on organizations that are tax-exempt under Section 501(c)(3).

While this change is an official change of IRS procedure, it will not be welcomed by everyone. The change has already drawn opposition statements and comments. However, until there is a modification or elimination by the IRS, the changes that Revenue Procedure 2018-38 carries will need to be considered by affected taxpayers.

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