Proposed regs. clarify reporting requirements for tax-exempt organizations

By Dave Strausfeld, J.D.

Tax-exempt organizations will be able to find most of their reporting requirements in one place under regulations the IRS proposed Friday (REG-102508-16). The rulemaking mainly consolidates existing subregulatory guidance in one location, while also responding to a recent court decision that held invalid the agency’s attempt to change certain donor-reporting rules.

Donor reporting

The IRS had issued a revenue procedure in 2018 announcing that many tax-exempt organizations no longer need to report the names and addresses of their substantial financial donors (Rev. Proc. 2018-38). However, a federal court in Montana ruled in late July that if the IRS wishes to cease requiring this data about substantial donors, it must follow a more formal rulemaking procedure (Bullock, No. CV-18-103 (D. Mont. 7/30/19)). By issuing the proposed regulations Friday, the IRS did precisely what the court indicated was necessary by initiating a notice-and-comment rulemaking process.

Under the proposed regulations, the only organizations that will need to report the names and addresses of substantial contributors generally are Sec. 501(c)(3) organizations and Sec. 527 political organizations. Other exempt organizations will no longer have to include this donor data on Form 990, Return of Organization Exempt From Income Tax; Form 990-EZ, Short Form Return of Organization Exempt From Income Tax; or Form 990-PF, Return of Private Foundation. However, all these organizations will continue to be obligated to collect and keep this information and make it available to the IRS upon request.

In Bullock, Montana and New Jersey filed suit to block the IRS from making this change, which they said would inhibit their ability to enforce their own laws regulating the activities of tax-exempt organizations, because federal substantial-contributor data is shared with the states. The court agreed with the states’ contention that the IRS had followed the wrong procedural avenue when it altered the reporting requirements by way of a revenue procedure rather than through notice-and-comment rulemaking.

In a related development, the IRS issued Notice 2019-47 to provide penalty relief for certain exempt organizations that, relying on the 2018 guidance that the court subsequently set aside in Bullock, do not report the names and addresses of donors on annual returns for tax years ending on or after Dec. 31, 2018, and on or prior to July 30, 2019.

Other changes

Besides modifying the substantial-donor reporting rules, the regulations proposed Friday contain an assortment of other provisions and will “further increase the ability of a taxpayer generally to find its reporting requirements in one place,” according to the IRS.

Among other things, the proposed regulations will continue to excuse certain organizations from having to file an annual return if they normally have gross receipts of $50,000 or less, an exception currently found in Rev. Proc. 2011-15.

The regulations are proposed to be effective as of the date they are finalized. The IRS is requesting comments by Dec. 9.

Dave Strausfeld, J.D., ( is a JofA senior editor.

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