IRS proposes regulations allowing tax-exempt groups to keep donor identities secret

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The Internal Revenue Service and the Treasury Department issued proposed regulations Friday enabling tax-exempt organizations, including many political groups, to avoid disclosing the names of their contributors.

The IRS and the Treasury had earlier provided such relief to tax-exempt groups, such as 501(c)4 organizations that advocate for particular policy priorities, but a court struck them down. A recent court decision held that the Treasury and the IRS should have followed notice and comment procedures when announcing this relief last year when it came to providing contributor names and addresses. The proposed regulations unveiled Friday now provide the opportunity for notice and comment on that relief, along with other proposed updates to the existing regulations.

The proposed regulations are likely to generate comments critical of political groups using tax-exempt entities for fundraising without disclosing the identities of their donors, effectively using so-called "dark money" to finance their causes and preferred candidates. The rules would also apply to groups such as the National Rifle Association, labor unions and trade associations.

The top Democrat on the Senate Finance Committee, ranking member Sen. Ron Wyden, D-Ore., blasted the proposed regulations and linked it to the recent resignation of a Republican member of the Federal Election Commission, whose absence will leave the FEC without the necessary quorum to conduct official actions.

“After Republicans’ failed attempts to repeal the Johnson Amendment and a federal court striking down the IRS’s dark money rule, the Trump administration is trying yet again to get more unaccountable dark money into tax exempt organizations like the NRA or Chamber of Commerce ahead of the 2020 elections,” Wyden said in a statement Friday. “By issuing this new rule, the Treasury Department is finally admitting its previous effort to jam through these changes was unlawful. I continue to strongly oppose the Trump administration’s attempts to weaken protections against illicit and foreign money in our elections. With Matt Petersen’s resignation leaving the FEC hamstrung going into the 2020 cycle, it’s critical that we maintain our limited safeguards against dark money. A key piece of Republicans’ electoral strategy is to allow as much dark money to be pumped into the system as possible. Advocates for election security and good governance of tax-exempt organizations must voice their concerns during this comment period.”

Among other provisions, the proposed regulations include the existing exception from having to file an annual return for certain organizations that usually have gross receipts of $50,000 or less, found in Revenue Procedure 2011-15. The proposed rules also incorporate relief from requirements to report contributor names and addresses on annual returns filed by certain tax-exempt organizations, previously provided in Revenue Procedure 2018-38, which is the one that the recent court decision invalidated.

Under the proposed regulations, filing requirements for Section 501(c)(3) organizations and Section 527 political organizations remain unchanged, and all organizations need to hold onto the contributor information and make it available to the IRS upon request.

In keeping with the court ruling requiring a notice and comment period, the Treasury and the IRS are asking for public comment on these and other aspects of the proposed regulations. The new rules propose to allow tax-exempt organizations to elect to apply the regulations to returns filed after Sept. 6, 2019.

Also on Friday, the IRS issued Notice 2019-47, which provides penalty relief for certain tax-exempt organizations that, consistent with the earlier 2018 guidance from the IRS, don’t report the names and addresses of contributors on Schedule B of their Forms 990 or 990-EZ annual returns for tax years ending on or after Dec. 31, 2018, but on or before July 30, 2019.

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Tax regulations IRS Tax exemptions Treasury Department Non-profits