In a move that has generated both praise and criticism, the Internal Revenue Service recently issued guidance that changes the way donor information will be reported for many nonprofits, effective for taxable years ending on or after December 31, 2018. Thus, the new reporting requirements will generally apply to the returns of those affected nonprofits beginning with next filing season, i.e., information returns due on or after May 15, 2019.
Currently all filers of Forms 990 and 990EZ must provide certain donor information when filing their returns with the IRS. This includes the names and addresses of the donors and the amount donated during the filing year, if over the threshold for reporting. The names and addresses of the donors are not open to public inspection however.
Under its new rules, the IRS will no longer require many tax-exempt organizations – other than, §501(c)(3) organizations and §527 political organizations – to include their donor’s names and addresses when filing their returns. The requirement that these organizations list contributions in excess of $5,000, however, remains.
Although Form 990 filers exempt under §501(c)(3) and §527 will be required to continue reporting all of the information that is currently required, among the organizations that will have reduced filing requirements are trade associations, labor unions and social welfare organizations.
The IRS has explained that the change was prompted by a recognition that the submission of names and addresses of nonprofit donors does not generally facilitate its mission of tax administration. Nevertheless, the move is seen as controversial due to the effect such a scale back of required donor information may have for those nonprofit organizations permitted to engage in limited amounts of political activities.
The IRS further noted that the change is a positive one both in terms of the reduction in costs associated with the redaction of the information from forms prior to release to third parties and the reduction in risk of the inadvertent disclosure of information, which is not otherwise subject to public inspection.
Notably, those organizations that will no longer need to submit the donor names and addresses as part of their information return filings, will, however, still need to maintain records to support the contribution amounts disclosed in those returns. As the IRS explained, this information must be available to the Service upon request, when needed for tax administration.
Patty O’Malley is a senior manager at Rubino & Company and has been providing taxation services for over 30 years. With an emphasis on accountability, Patty assists public sector organizations in meeting their financial reporting, operational and federal and state filing requirements. Learn more about Patty’s experience.