In a 6-3 vote on July 1, 2021, the U.S. Supreme Court ruled that it is unconstitutional for the State of California to require charities to provide their Form 990 series, Schedule B, Schedule of Contributors, when registering and providing annual reports with the state.
Schedule B requires charities to report donor information, including the name, address and total amount of contributions, annually to the Internal Revenue Service (“IRS”). Unlike Form 990 and other required schedules, Schedule B is not open to the public disclosure requirements and is redacted from Form 990 prior to being released to the public.
The case was brought by the Americans for Prosperity Foundation, a tax-exempt organization. The State of California argued that the Attorney General needs donor information to help police misconduct by charities. Opposition to the California requirement argued that it would violate the First Amendment of the U.S. Constitution under the protections of free speech and free association. Chief Justice John Roberts in his opinion wrote, “This information includes donors’ names and the total contributions they have made to the charity, as well as their addresses. Given the amount and sensitivity harvested by the State, one would expect Schedule B collection to form an integral part of California’s fraud detection efforts. It does not.”
This ruling is very impactful to the exempt organization sector. Several other states such as New York and Florida followed California by requiring charities to submit Schedule B when registering with their state. These states will likely change their registration requirements after this ruling. For Pennsylvania, the Bureau of Corporations and Charitable Organizations has never required Schedule B to be attached to form BCO-10, Charitable Organization Registration Statement.
The IRS has been very straightforward in stating that Schedule B of the Form 990 series is not required in order for the IRS to enforce the Internal Revenue Code (“IRC”). Revenue Procedure 2018-38 was the IRS’s first attempt on September 10, 2019 to require that only IRC Section 501(c)(3) public charities and private foundations and political organizations exempt under IRC Section 529 file Schedule B. The new rule changed donor reporting requirements for various tax-exempt organizations, including social welfare organizations described in Section 501(c)(4), labor organizations described in Section 501(c)(6), and trade associations described in Section 501(c)(6). This procedure was challenged by several states. Final Treasury Regulations were released on May 28, 2020. It will be very interesting to see if the IRS continues to require charities to provide this donor information on Schedule B now that it has been deemed unconstitutional for states to require this information.
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