The New Jersey Division of Consumer Affairs has announced that certain nonprofit organizations must disclose donors who have contributed $5,000 or more in a tax year, as part of annual reports due to the state. Although styled as "charitable" registration requirements, the law also applies to social welfare organizations that are no longer required to provide donor information to the IRS.
The state's new disclosure law will impact both 501(c)(3) charities and 501(c)(4) social welfare organizations that are domiciled in New Jersey or solicit New Jersey residents for contributions (which will include organizations that solicit nationally). State law requires these organizations to register and file annual reports with the Charities Registration Section, and now these annual reports must include the name, address, and amount given by each donor who contributed $5,000 or more to the organization during the previous tax year. Small organizations that have filed the Form 990-N are exempt from the new donor disclosure requirement.
Under New Jersey law, donor information is not considered a matter of public record and will not be made available for public inspection. Although New Jersey has asserted that it has measures in place to protect the confidentiality of donor information, there is always the possibility of state regulator error.
In July 2018, the IRS announced that 501(c)(4) organizations would no longer be required to provide a list of their donors to the IRS. Under the old rule, the Schedule B containing donor information was not made available to the public, although the IRS received that information, and occasionally that information was impermissibly leaked or accidentally made available. Since then, only a handful of other states, such as New York and California, have required organizations that register and report under nonprofit fundraising requirements to provide donor information.
Meanwhile, New Jersey is taking the lead among the states in challenging the IRS's rollback of donor disclosure in the courts.
New Jersey and Montana:
On March 13, 2019, New Jersey joined a Montana lawsuit to argue that in issuing the donor disclosure rollback through a revenue procedure, the government violated the Administrative Procedure Act by not complying with the notice and comment requirement and that the rule change was arbitrary and capricious.
New Jersey and New York:
On May 6, 2019, New Jersey and New York filed a complaint against the IRS and the Department of Treasury for information regarding the government's decision to stop requiring certain tax-exempt organizations to disclose donors with their annual Forms 990. This lawsuit follows Freedom of Information Act requests filed by the states with the IRS and Treasury in October 2018, and argues that the government violated FOIA by not providing a timely response, by not disclosing requested documents, and by unlawfully withholding requested information.
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As New Jersey forges ahead, it will be interesting to see if other states join in requiring increased donor disclosure. We will continue to monitor this issue as it unfolds in both the courts and state legislatures.
This post is reprinted from Venable LLP Insights.
Cynthia (Cindy) Lewin is a partner at Venable LLP and chair of Venable's Nonprofit Organizations practice. Janice Ryan is a partner at Venable and an experienced general counsel to tax-exempt organizations, specializing in lobbying and political activities compliance. Rachel Provencher is an associate at Venable who focuses on political law and nonprofit organizations.