Internal Revenue Service Issues Final Regulations on Donor Disclosure RequirementsBy Magdalena M. Czerniawski | Robert Lyons | June 8, 2020
After much deliberation, on May 26, 2020, the IRS issued Treasury Decision (T.D.) 9898, which includes final regulations on donor disclosure requirements as well as some technical corrections.
Code Section 6033
Subject to various exceptions, Code Section 6033 (a)(1) requires every organization exempt from taxation under Section 501(a) to file an annual return. The annual information returns required under Section 6033 are Forms 990, “Return of Organization Exempt From Income Tax;” 990-EZ, “Short Form Return of Organization Exempt From Income Tax;” and 990-PF, “Return of Private Foundation.” This grouping also includes annual returns filed by tax-exempt organizations, Section 527 organizations, nonexempt private foundations and Section 4947(a)(1) trusts.
In regard to lack of consistency, for example, Section 6033(a)(3)(A)(ii) provides that organizations whose gross receipts are not normally more than $5,000 annually are not required to file. This is inconsistent with the rules related to Form 990-N, “Electronic Notice.”
Section 6033 provides additional filing requirements for supporting organizations and the requirements as to whether they fall within the category of Type 1, Type 2 or Type 3. In addition, Section 6104 requires all returns filed under Section 6033 to be open for public inspection. However, it does not authorize the publishing of donor information except in the cases of private foundations and Section 527 political organizations. From this, a substantial argument arose concerning the publishing of names and addresses for Section 501(c)(4) social welfare organizations and 501(c)(6) contributors.
After issuing the proposed regulations on September 6, 2019, the IRS allowed a comment window before issuing final regulations. The Treasury Department and the IRS received 8,387 written and electronic comments responding to the 2019 proposed regulations.
After reviewing these comments, the Treasury Department and the IRS have concluded that the IRS does not need the names and addresses of substantial contributors to tax-exempt organizations not described in Section 501(c)(3) to be reported annually on Schedule B of Form 990 or Form 990-EZ in order to administer the Internal Revenue laws. In light of the risks and burdens associated with requiring the annual reporting of such information, the final Treasury Regulations revise the regulations under Section 6033 to remove the general requirement for tax-exempt organizations not described in Sections 501(c)(3) or 527 to report annually the names and addresses of substantial contributors.
This Treasury Decision revises Section 1.6033-2(a)(2)(ii)(F) to provide that organizations described in Section 501(c)(3) generally are required to provide names and addresses of contributors of more than $5,000 on their Forms 990, 990-EZ and 990-PF. Similarly, Section 1.6033-2(a)(2)(iii)(D) is revised to remove the requirement to provide the names of contributors who contribute over $1,000 for a specific charitable purpose to organizations described in Sections 501(c)(7), (8) and (10). Additionally, as discussed earlier, Section 527 organizations must continue to report the names and addresses of substantial contributors.
Tax-exempt organizations must continue to report the amounts of contributions from each substantial contributor as well as maintain the names and addresses of their substantial contributors in their books and records in order to permit the IRS to efficiently administer the Internal Revenue laws through examinations of specific taxpayers.
Affect on States
The Treasury Department and the IRS also repeated its previous statements in the final regulations, again after receiving multiple comments that the Code limits the purposes for which states may use the federal 990 returns filed with the IRS. Code Section 6104(c) limits the use of the federal return to administering state laws relating to solicitation or uses of charitable assets of the organizations. Therefore, requiring 501(c)(3) organizations to provide Schedule B helps with that enforcement. However, requiring this information from other than charitable organizations, such as 501(c)(4) or (6) organizations, does not fulfill that purpose. Therefore, the IRS stated that if states do require that information, they can require the organizations to report them on their own. Interestingly, both New York and New Jersey changed their requirements recently to require organizations, such as 501(c)(4) and (6), to provide a completed copy of Schedule B regardless of the IRS requirement not to do so. As the regulations are final, there might be more states that follow suit.
In regard to technical corrections, the most significant change in the final regulations replaces the $5,000 filing threshold with the “not more” than $50,000 floor for Form 990-EZ. Therefore, all organizations (other than private foundations and supporting organizations) with gross receipts below the threshold must continue to file Form 990-N under Section 6033(i). The final regulations also incorporate the previously granted relief from the filing requirement under Section 6033(a) for foreign organizations and organizations formed in a United States possession (other than private foundations and supporting organizations) as reflected in Rev. Proc. 2011-15.
For the most part, the final regulations were consistent with the proposed regulations except for various technical corrections. It will be interesting to see how many states will decouple from the final regulations for their own needs.
About Magdalena M. Czerniawski
Magdalena M. Czerniawski, CPA, MBA, is a Partner at Marks Paneth LLP and a member of the firm’s Nonprofit, Government & Healthcare Group. With over 15 years of nonprofit industry experience, she provides tax services to a wide array of nonprofits, including charitable organizations, schools, social welfare organizations, professional associations and private foundations. In addition to providing tax planning and advisory services, Ms. Czerniawski specializes in matters related to ASC 740-10 (FIN 48), the reporting... READ MORE +
About Robert Lyons
Robert (Rob) Lyons, CPA, MST, is a Tax Director, Exempt Organizations in the Nonprofit, Government & Healthcare Group at Marks Paneth LLP. Mr. Lyons brings to this role the skills he has developed during more than 30 years of providing tax and consulting services to his clients in the nonprofit, higher education, and public sector industries. His experience includes handling substantial exempt organization tax issues. Mr. Lyons has testified in front of the House and Ways Committee in... READ MORE +