Nonprofit organizations and donors recently received a rare vote of support for privacy from the federal government, as the United States House of Representatives overwhelmingly passed a bill designed to amend the Internal Revenue Code to prohibit the Internal Revenue Service(IRS) from requiring a tax-exempt organization to include the name, address, or other identifying information of contributors on annual returns. The House passed the “Preventing IRS Abuse and Protecting Free Speech Act” as introduced by Representative Peter Roskam, R-IL, by a vote of 240-182.
“We voted to eliminate a confidential form the IRS proved incapable of securing,” Roskam said after the legislation passed in June. “The agency has said it doesn’t even need this form for tax administration in the first place.”
Previously, 501(c)(3) and 501(c)(4) nonprofits were required to provide the IRS with the names and addresses of contributors who gave $5,000 or more to the group that year on the Schedule B of their annual Form 990 returns.
“Congress, in essence, has expressed their desire for exempt groups to stop reporting their donors to IRS,” said Stephanie Blanco, CPA, Senior Manager at John Kasperek Co., Inc. and Chair of the Illinois CPA Society Government Report Review Committee. “It signals a minor shift towards reporting privacy which will reduce transparency, but nonprofits may also realize a positive benefit through increased support from donors who prefer to remain anonymous.”
H.R.5053 does include exceptions for “(1) required disclosures regarding prohibited tax shelter transactions; and (2) contributions by the organization's officers, directors, or five highest compensated employees (including compensation paid by related organizations).”
“Like all changes, there are protections and exceptions to this rule particularly regarding donations from a nonprofit’s leadership,” added Blanco. “It is critical for nonprofit organizations to be actively informed about the ongoing federal changes to disclosure and regulations as they continue to evolve.”