Some Happenings

Law Office of Jonathan Ackerman, LLC Newsletter - Volume 5.1 (2018)

By Jonathan Ackerman, Esquire

UPDATE - IRS Withdraws Proposed Regulations on Alternative Reporting of Charitable Donations – The Proposed Regulations would have implemented an exception to the "contemporaneous written acknowledgement" requirement for substantiating charitable contributions of $250 or more. The Proposed Regulations provided rules concerning the manner and time for donee organizations to file information returns that report the required information about contributions, see CAR Newsletter Volume 4.1 - Some Happenings for background and more.

The Rest of the Story – The IRS has withdrawn these proposed regulations that would have implemented an optional donee reporting procedure, as authorized by IRC Section 170(f)(8)(D), for substantiating charitable contributions of $250 or more. These regulations had caused controversy because, even though the procedures contained in them were optional, donee organizations that elected to use those procedures would have to obtain, store and send to the IRS its donors' social security numbers, causing a potential identity theft problem. As a result, IRC Section 170(f)(8)(D)'s exception to the contemporaneous written acknowledgment requirement remains unavailable, unless and until final regulations are issued in this regard.

I had the privilege of serving on the Charitable Planning and Organizations Group of the American Bar Association Section of Real Property, Trust and Estate Law, which provided comments to the Treasury Department on these Proposed Regulations.
 
UPDATE - Compliance with State Charitable Solicitations Laws - Courts Rule on Disclosure of Un-redacted Schedule B of IRS Form 990 – The Court of Appeals for the Ninth Circuit Court of Appeals has once again held that a California charitable registration requirement was constitutional as applied to two tax-exempt organizations, American for Prosperity Foundation, et al v Becerra (CA 9, 9/11/2018), No. 16-55727.

See CAR Newsletter Volume 4.1 - Some Happenings for a discussion of two prior federal court rulings, which similarly held that charities must disclose an un-redacted Schedule B from their IRS Forms 990 to the States for purposes of registering with the States to comply with their charitable solicitations laws – Center for Competitive Politics v Harris (CA 9 2015), and Citizens United v Schneiderman (NY).

As background, Schedule B generally requires a list of the names and donation amounts of certain donors (who have contributed more than $5,000 in a single year). Though the IRS Form 990 must be made available for public inspection, it does not apply to the Schedule B (IRC Section 6104). California law requires charities to file a copy of their IRS Form 990, including Schedule B, with the State Registry in complying with its charitable solicitations registration requirements.

Brief Facts – Since 2001, Americans for Prosperity Foundation (AFP) and Thomas More Law Center did not file, or filed redacted versions of, the Schedule B with the California Attorney General, and California informed them in 2012 that their filings were deficient.

In December 2014, AFP filed a case in the U.S. District Court seeking an order preliminarily enjoining the AG from demanding its Schedule B on two constitutional grounds ('facial' & 'as applied' standards). The District Court granted the injunction and the AG appealed to the 9th Circuit Court of Appeals. While those appeals were pending, the 9th Circuit ruled on the Center for Competitive Politics (CCP) case mentioned above.

In the AFP case, the 9th Circuit found that the first challenge (that the CA requirement was 'facially' unconstitutional) had been answered in the CCP case, but remanded the second challenge (that the CA requirement was unconstitutional 'as applied' to AFP) back to the District Court for reconsideration. The District Court on remand once again affirmed the injunction and held that the 'exacting scrutiny' standard had not been met in this case.

The 9th Circuit Court of Appeals then reversed the District Court on the second ground, holding that the Schedule B requirement survives the 'exacting scrutiny' standard as applied to these charities, because it was substantially related to an important state interest in policing charities. This Court found that the 'exacting scrutiny' standard merely requires that the strength of the governmental interest reflect the seriousness of the actual burden on First Amendment rights.

This Court further found that the government had a significant interest in assuring that charities comply with the law and that the actual burden on the charities' First Amendment rights was insufficient to overcome such governmental interest. The Court further found that the mere possibility that some contributors may withhold their support did not amount to a substantial burden. Lastly, this Court determined that, while public disclosure of those donors' names could create a potential risk of future contributions to those organizations, such risk was low, because the Schedule B information is prohibited from public disclosure under California law.