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As we reported last summer the IRS policy change was a significant shift in donor disclosure rules for 501(c)(4) social welfare organizations, trade associations, and other tax-exempts.  For over 50 years, the IRS had required that these tax-exempt organizations report the names and addresses of certain donors on Form 990, Schedule B, but the change in policy eliminated that requirement, even though the information was previously redacted by the IRS and tax-exempt organizations before making a Form 990 public.  In announcing Revenue Procedure 2018-38, the IRS stated that the new policy did not prevent it from demanding donor information from tax-exempt organizations, which was still required to be collected and maintained by the organizations.

The federal court ruling invalidated Revenue Procedure 2018-38, effectively reinstating the requirement that tax-exempt organizations report their donors’ names and addresses to the IRS on Form 990, Schedule B.  After finding that the plaintiffs—Montana Governor Steve Bullock, the Montana Department of Revenue, and the state of New Jersey—had standing to challenge the policy change, the judge held that the policy was invalid.  Current Treasury regulations require tax-exempt organizations to “file an annual information return” that includes “[t]he total of the contributions, gifts, grants, and similar amounts received . . . and the names and addresses of all persons who contributed, bequeathed, or devised $5,000 or more . . .”  26 C.F.R. § 1.6033-2(a)(ii)(f).  The court concluded that the IRS abolished the requirement to report donor names and addresses, which “effectively amended” the regulation, without adhering to notice-and-comment procedures.

The IRS had argued in the case that Revenue Procedure 2018-38 merely concerned a matter of agency practice or procedure and was therefore an “interpretive rule” that does not require notice and comment.  However, the court rejected this contention, on the basis that an interpretive rule must be “consistent with the regulation that it seeks to interpret.”  Here, the court found, the new policy conflicted with the existing regulation, which affirmatively requires tax-exempts to report donor information.  Accordingly, the court found that the new procedure was a “legislative rule” that would have the force of law, not an interpretive rule, and must therefore undergo the public notice-and-comment procedure.

The court made clear that the plaintiffs did not challenge “the substance of the IRS’s decision or whether substantial-contributor information must be disclosed,” but rather that the IRS failed to follow the required notice-and-comment procedure.  Nothing in the court’s order would prevent the IRS from eliminating the requirement that tax-exempts report their donors.  If the ruling stands, then, per the court’s order, the “IRS must follow the proper notice and comment procedures pursuant to the APA if it seeks to adopt a similar rule,” and may not, as the court put it, “attempt to evade the time-consuming procedures of the APA.”

We will monitor closely whether the IRS will attempt to repeal the donor reporting requirement for certain tax-exempts through a public notice-and-comment procedure, or whether the agency will appeal.

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Photo of Matthew Shapanka Matthew Shapanka

Matthew Shapanka draws on more than 15 years of experience from Capitol Hill, private practice, state government, and political campaigns to counsel clients significant legislative, regulatory, and enforcement matters. He develops and executes complex, multifaceted public policy initiatives for clients seeking actions by…

Matthew Shapanka draws on more than 15 years of experience from Capitol Hill, private practice, state government, and political campaigns to counsel clients significant legislative, regulatory, and enforcement matters. He develops and executes complex, multifaceted public policy initiatives for clients seeking actions by Congress, state legislatures, and federal and state government agencies, many with significant legal and political opportunities and risks. Matt also leads the firm’s state policy practice, advising clients on complex multistate legislative and regulatory policy matters and managing state advocacy efforts.

Matt rejoined Covington after serving as Chief Counsel for the U.S. Senate Committee on Rules and Administration, where he advised Chairwoman Amy Klobuchar (D-MN) on all legal, policy, and oversight matters before the Committee, including federal election and campaign finance law, Federal Election Commission nominations, and oversight of legislative branch agencies, U.S. Capitol security, and Senate rules and regulations. Most significantly, Matt led the Committee’s staff work on the Electoral Count Reform Act – a landmark bipartisan law enacted in 2022 to update the procedures for certifying and counting votes in presidential elections —and the Committee’s joint (with the Homeland Security Committee) bipartisan investigation into the security planning and response to the January 6, 2021 attack on the Capitol.

Both in Congress and at Covington, Matt has prepared dozens of corporate and nonprofit executives, academics, government officials, and presidential nominees for testimony at congressional committee hearings and depositions. He is also an experienced legislative drafter who has composed dozens of bills introduced in Congress and state legislatures, including several that have been enacted into law across multiple policy areas.

In addition to his policy work, Matt advises and represents clients on the full range of political law compliance and enforcement matters involving federal election, campaign finance, lobbying, and government ethics laws, the Securities and Exchange Commission’s “Pay-to-Play” rule, and the election and political laws of states and municipalities across the country.

Before law school, Matt worked in the administration of former Governor Deval Patrick (D-MA) as a research analyst in the Massachusetts Recovery & Reinvestment Office, where he worked on policy, communications, and compliance matters for federal economic recovery funding awarded to the state. He has also worked for federal, state, and local political candidates in Massachusetts and New Hampshire.

Photo of Susan Leahy Susan Leahy

Susan Leahy advises tax-exempt and not-for-profit organizations on a wide variety of matters. She counsels clients on Internal Revenue Code, Treasury regulations, rules regarding private benefit, self-dealing, inurement, unrelated business income tax, intermediate sanctions, relationships with for-profit organizations, joint ventures, corporate sponsorship, lobbying…

Susan Leahy advises tax-exempt and not-for-profit organizations on a wide variety of matters. She counsels clients on Internal Revenue Code, Treasury regulations, rules regarding private benefit, self-dealing, inurement, unrelated business income tax, intermediate sanctions, relationships with for-profit organizations, joint ventures, corporate sponsorship, lobbying, and political activities.