Taxpayer group sues IRS over donor lists

The National Taxpayers Union Foundation's Taxpayer Defense Center filed a lawsuit Monday against the Internal Revenue Service seeking to end the collection of private donor information from nonprofits, arguing it's unconstitutional under the First Amendment.

The lawsuit was filed on behalf of Young America's Foundation, a 501(c)3 conservative-leaning nonprofit led by former Wisconsin Governor Scott Walker. The lawsuit argues that the group was among those whose confidential tax returns were leaked by Charles Littlejohn, a former IRS contractor who is serving a prison sentence for leaking the tax returns of President Trump and other billionaires to The New York Times and ProPublica. Trump later sued the IRS and his settlement with the IRS provides him with immunity from audits but is being challenged by a federal judge overseeing the case. 

In 2024, YAF said it received a letter from the IRS saying the information on its past tax returns had been leaked by Littlejohn. More broadly, it wants to end the collection of nonprofit donor information by the agency on Schedule B of the Form 990 filed by Section 501(c)3 tax-exempt organizations.

The NTUF pointed out that the IRS stopped collection of Schedule B for 501(c)(4) nonprofits in 2020. It also cited a 2021 Supreme Court ruling that also involved a conservative political group, Americans for Prosperity Foundation v. Bonta, as well as other landmark Supreme Court cases dating back to the Civil Rights era, saying any government demand for membership or donor lists must survive an "exacting scrutiny" standard to be upheld under the First Amendment. The information collection must be substantially related to a sufficiently important government interest, according to the NTUF.

"As a matter of Supreme Court case law precedent, the Supreme Court has said that any government demand for a list of donors or supporters or members of an organization has to meet a high threshold called 'exacting scrutiny,'" said NTUF director of litigation Tyler Martinez. "We say that the collection of this information by the IRS for every single nonprofit can't meet that level of scrutiny. We say they're not using it for enforcing the laws, and on top of that, they can't keep it secure, and on top of that, they don't need everybody's information. If there's a worry about a particular organization, then they can always ask for a members list on a narrow basis."

In a video publicizing the lawsuit, Walker discusses the privacy rationale for the lawsuit: "People [who] give to us ... assume that the IRS is supposed to be an independent, objective organization that doesn't reveal that information. They start to wonder, 'Hey, wait a minute, what more is going to be out there?'"

The lawsuit argues the IRS does not even use the donor information in Schedule B for routine enforcement of the tax laws, and in 2020, the agency promulgated a rule to exempt most 501(c) organizations from Schedule B disclosure. 

The IRS did not immediately respond to a request for comment on the lawsuit, which was filed against the agency, as well as the Treasury Department, IRS CEO Frank Bisignano and Treasury Secretary Scott Bessent. In April, the Treasury and the IRS announced that they plan to revamp the Form 990 to require more donor information in an effort to uncover fraud and hidden sources of funding. 

"It's a concern for anybody," said Martinez. "This isn't a Republican-versus-Democrat thing. There's been problems with the IRS collecting this kind of sensitive information under multiple presidential administrations. You can pick your victim, you can pick your bad guy, it doesn't matter. It's always been a problem for everybody. Whether it's disclosures that happened under the prior administration or this current administration, it's all the same."

He sees this as a fundamentally different case from Trump's own $10 billion lawsuit against the IRS that led to the deal granting him, his family members and businesses immunity from IRS audits in the settlement over the leak of his tax returns by Littlejohn.

"What is at issue here is an organization that's been hurt and is worried about their donors," he said. "Unlike the president of the United States, YAF has asked for no money. This complaint does not ask for any damages. It just asks that they don't have to disclose their donors in the future, so they can protect their donors. This one's forward-looking and trying to stop the problem, rather than worrying about some kind of big money demand."

He sees it as the donors' right to privacy of association, whether a Republican or Democrat is in charge of the next administration. "The right really was born out of the Civil Rights era, where the Southern states were going after the NAACP and trying to harass and intimidate people who wanted to support the Civil Rights movement," said Martinez. "That exists on both sides of the political aisle. It doesn't matter who is in charge."

He expects the IRS and the Treasury will have at least 60 days to respond to the lawsuit. If the plaintiffs ultimately prevail, he predicted it would reduce the burden of filling out the Form 990 for both nonprofit organizations and their accountants. 

"It will lessen the burden of filing Form 990 if organizations are not trying to collect all this donor information to put on Form 990," said Martinez. "That'll make tax filing season for nonprofits easier as well."