Thread by @jbhenchman

On Friday, NTUF filed a brief with the U.S. Supreme Court in an important donor privacy and tax administration case. I was honored to co-author the brief with Barnaby Zall of the Public Policy Legal Institute

ntu.org/foundation/det…

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The case, which will be argued this spring, involves a 2010 demand by then-California Attorney General Kamala Harris that non-profit organizations seeking to solicit donations in California first submit IRS Form 990 Schedule B, an obscure tax form that lists donors.

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Our brief explains why this information is neither precise nor effective for legitimate tax administration purposes, to the extent that the IRS has for years been trying to get rid of the form altogether.

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The AG claims they want the information to enforce federal prohibitions against “private inurement” and “private benefit.”

But Schedule B has no information that would, alone or with other documents, demonstrate either of those violations.

That's all on the Form 990 itself.

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The AG also contends that Schedule B is needed to identify overvalued non-cash
contributions.

But Schedule B doesn't break down that information. Schedule M, which is publicly available, does.

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Form 990 is tailored specifically to identify wrongdoing, through initial checklists and detailed additional schedules. It can and does catch wrongdoing, albeit by being a big pain for every non-profit to fill out every year.

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In contrast, Schedule B was never designed to be
used to police fraud or any other wrongdoing. Its sole
purpose was to assist IRS employees in identifying
confidential donor information so donors could be
protected from disclosure.

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The California AG concedes that of 540 investigations of non-profits it has undertaken, only five have involved Schedule B even tangentially.

The IRS under both the Obama and Trump admins have sought to eliminate Schedule B as a privacy risk and compliance headache.

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So why does the California AG actually want non-profits to turn over donor lists to the state?

The present AG signed a letter urging identifying "corporations, wealthy individuals, and special interests [who] seek to influence politics
without leaving fingerprints."

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Again, Schedule B doesn't really help with that. Form 990 asks those questions in greater detail and the information there is machine-matchable with other tax filings. Not so with Schedule B.

There is speculation the purpose is to shame, leak, or expose donor information.

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Regardless, donor lists are not essential or efficient in
regulating charities. Their compelled (and warrantless, advance) disclosure raises
constitutional questions. More efficient and targeted information to detect and document possible violations is publicly available.

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After Nixon misused tax information for political purposes, Congress enacted stringent privacy protections on tax information.

The IRS has strict rules on how Schedule B can be handled to prevent accidental (or malevolent) public disclosure.

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California notably has no tracking or logging system for this information. They tried the IRS best practices but found them too restrictive:

"And I did all those things,
but in the end it was impossible to use what we were
receiving even though it was valuable.”

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What happens to taxpayer confidence when a State uses federal tax information and it leaks? Most taxpayers will likely not distinguish between state or federal officials revealing information on a federal tax form, since the effect on privacy in an Internet era is the same.

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Breaching privacy means breaching confidence in the tax system, risking slaying the voluntary tax compliance goose that lays the golden eggs.

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Our brief also rebuts an argument put forth by the United States government that charities give up constitutional rights as a condition of accepting tax-exempt status.

Instead, we argue Congress cannot set a funding condition that entirely restricts a constitutional right.

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The brief asks the Court to clarify a 1983 decision, Regan v. Taxation With Representation, that the United States relied on for its argument.

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We also remind the Court that tax-exempt status means exempting from paying corporate income tax on activities related to the charitable mission. Charities must still comply with all other tax obligations and regulations.

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This case is about protecting donors against injury, using longstanding First Amendment doctrines balancing privacy against government power. It is also about protecting against a decrease in voluntary
compliance by taxpayers dismayed by misuse of personal tax information.

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The Ninth Circuit got it wrong and we hope the Supreme Court will reverse, clarify that Regan is not a carte blanche to deprive charities of constitutional rights, and halt the CA fishing expedition.

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NTUF joined with PPLI for the brief in Americans For Prosperity Foundation v. Becerra and Thomas More Law Center v. Becerra, Case Nos. 19-251 & 19-255.

PDF of our brief is here: ntu.org/library/doclib…

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