U.S. District Court Requires Tax-Exempt Organizations to Disclose Donor Information to New York
Background
Citizens United and Citizens United Foundation are tax-exempt organizations which state that they promote “limited government, free enterprise, strong families and national sovereignty and security.” Citizens United is recognized by the Internal Revenue Service (“IRS”) as tax-exempt under Internal Revenue Code §501(c)(4) organization. Citizens United Foundation is recognized by the IRS as tax-exempt under Internal Revenue Code §501(c)(3). The Plaintiffs utilize media outlets such as television commercials, web based advertising and documentary films, to raise awareness of and solicit funds from like-minded individuals for their projects.
In order for the Plaintiffs to maintain their tax-exempt status they are required to be compliant with both Federal and state reporting and registration requirements. As such, the Plaintiffs annually file Form 990 with the IRS, which includes Schedule B, Schedule of Contributors. Although the Form 990 is a public document, pursuant to Federal law, the names and addresses of donors included in Schedule B are redacted and not made available for public inspection. Schedule B, which is the prominent issue of this litigation, generally requires tax-exempt organizations to report the name, address and total contribution of any donor which contributed $5,000 or more in cash or non-cash items to the organization during the tax year. Additionally, in order for the Plaintiffs to solicit contributions in New York they must be registered with the state through the filing of a Form CHAR410, Registration Statement for Charitable Organizations. Once registered, the state requires the filing of an annual report Form CHAR500, NYS Annual Filing for Charitable Organizations. Taxpayers must enclose “a copy of the complete IRS Form 990, 990-EZ or 990-PF with schedules” with their CHAR500 filing on an annual basis.
In 2006, the New York Attorney General’s office interpreted the state regulation which requires tax-exempt organizations to attach a complete copy of their Form 990 to the CHAR500 to include Schedule B. The Plaintiffs, who have been registered as charities in New York since 1995, have not included a copy of their respective Schedule B with any of their annual report filings.
The Case
In 2012, after conducting a review of its operations, the State of New York Charities Bureau determined that certain organizations were not including a copy of Schedule B with their annual reports. The Attorney General’s office “implemented an across-the-board initiative to identify and notify registered organizations of their filing deficiencies with respect to Schedule B”. In April 2013, the Plaintiffs were notified that their 2011 annual tax reports were deemed to be incomplete due to the lack of an attached Schedule B.
Despite the rules and regulations in place, the Plaintiffs alleged that enforcing the Schedule B policy violated their First Amendment rights to freedom of speech and association. The Plaintiffs argument stated that this request was a violation of the First Amendment in two ways. First, the Attorney General’s interest in enforcing Schedule B placed an unconstitutional burden on the organization and second, Article 7 of New York Executive Law was unlawful because it conferred unchecked power to the Attorney General to impose unlimited conditions on charities’ ability to speak. In addition, the Plaintiffs also claimed that the Schedule B policy was a burden that relied heavily on the risk of public disclosure of donor information.
Notwithstanding the facts presented, the Court determined that the Plaintiffs failed to show that they would suffer “irreparable harm” from the disclosure of the organization’s Schedule B due to the fact that the State followed a long-standing policy that ensured that donor information was kept confidential from the public. As noted in the opinion, “The Attorney General has explained that requiring registered charities to file Schedule B furthers the government’s interest in overseeing charitable organizations and enforcing solicitation laws because information on charities’ sources of funding enables him to identify organizations that may be operating fraudulently or without a proper charitable purpose.”
In order for the State of New York to require this type of information to be provided by a tax-exempt organization, it must show that the disclosure of this information satisfies a government interest.
Conclusion
The disparity in the transparency interest of the states and the privacy interests of both the charitable organizations and its donors is a battle which is currently being played out in the courts of states other than New York. In California, there is ongoing litigation between the state and The Center for Competitive Politics. The issue in this litigation is the same as the Plaintiffs case noted above. The California Attorney General asserts that state law requires charities wanting to solicit donations in California to file a complete copy of their Form 990, including Schedule B. While charitable organizations are always looking to increase donations there is much concern that states’ requirement for full transparency could negatively impact their ability to solicit such funds. The states counter this argument by noting that their respective policies would require that this information be kept confidential and as such would cause no adverse conditions for the charitable organizations.
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