In July the Treasury Department and IRS announced a significant change to the reporting requirements for nonprofits that meet the requirements to be treated as a social welfare organization under section 501(c)(4) of the Internal Revenue Code (as well as other types of political nonprofits, like unions). One of the key features of social welfare organizations is their ability to engage in political activities. Under previous rules, 501(c)(4) organizations were required to disclose the names and addresses of their financial supporters as part of their annual tax filings (specifically, on Schedule B to Forms 990 or 990-EZ). The new rules do away with this reporting requirement.
Media attention around this change has focused on how it will affect high-profile organizations like the National Rifle Association. But managers of small, politically oriented nonprofits should take note that the change benefits their organizations as well. At the same time, managers need to be clear about exactly what those benefits are:
- Tax forms will be slightly shorter for some organizations, because donor information will no longer need to be included.
- An organization’s tax records will no longer be a source of donor information that may become accessible to the public. This is especially important for organizations with donors who would prefer to remain anonymous.
Organizations need to bear in mind what the new rule doesn’t do. Most importantly, details about each donor still need to be retained in the nonprofit’s records. If the IRS audits the organization, it may ask for donor records as part of its review.
Another important point to bear in mind is that the elimination of the donor disclosure requirement doesn’t mean that organizations can stop worrying about the source of their donations. Now that donors no longer need to be disclosed, an organization might conclude that it no longer matters where money comes from. That can be a big, even criminal mistake. Taking money from criminal organizations or foreign sources is still illegal and should be avoided using good know-your-donor practices.
The Church Law Center of California provides a range of legal services to religious and secular nonprofits. We help social welfare organizations stay on top of the rules and regulations that govern their work so they can focus on their missions. We can be reached at (949) 689-0437 or reach out to us through our contact page.