In April, the Supreme Court will hear arguments about whether states can require charities to confidentially disclose their donors to regulators (Americans for Prosperity v. Becerra and Thomas More Law Center v. Becerra). As advocates on both sides of the issue prepare and file their amicus briefs, many nonprofits are hearing about the “Schedule B issue” for the first time. So, what is at stake?

Nonprofits have been reporting donor information to the Internal Revenue Service (IRS) since the 1940s. The agency uses the information to check donors claiming charitable deductions on their tax returns with lists of donors from charities. The IRS is legally required to keep donor information confidential. Unfortunately, IRS officials have struggled to consistently redact confidential donor information in years past as nonprofits put it in different places on their Form 990.

Currently, charitable organizations are required to disclose the names of their major donors to the IRS on Schedule B of their Form 990. A nonprofit is required to file Schedule B with the IRS if it receives contributions greater than $5,000 or more than 2% of revenues from any one contributor. There have been cases in which the IRS accidentally disclosed the data, but less frequently than prior to the creation of the Schedule B.

While the IRS at the federal level conducts oversight of nonprofit organizations, its resources are limited, and its ability to revoke tax-exempt status is a blunt enforcement mechanism. State governments also are responsible for monitoring charitable organizations, particularly identifying and prosecuting cases in which there is waste, fraud, or abuse. In recent years, California, New York, and New Jersey began requiring charitable organizations to attach an unredacted version of the federal Schedule B forms when filing their information returns with states.

Read the full article about the "schedule B issue" by Allison Grayson at Independent Sector.