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September 14, 2018

California's 501(c)(3) donor disclosure requirement does not violate First Amendment, Ninth Circuit holds

In Americans for Prosperity Foundation et al. v. Becerra, the US Court of Appeals for the Ninth Circuit (the Ninth Circuit) has held that California's donor-disclosure requirement for charitable organizations does not violate the First Amendment. In so holding, the Ninth Circuit reversed district court judgments relating to two Section 501(c)(3) organizations and vacated injunctions preventing the California Attorney General from requiring the organizations to disclose such information.


Americans for Prosperity Foundation (the Foundation) and Thomas More Law Center (the Law Center) are Section 501(c)(3) tax-exempt organizations that, among other activities, solicit charitable contributions in the state of California.

Federal statute (IRC Section 6033) generally requires Section 501(c)(3) tax-exempt organizations to report the names and addresses of substantial contributors on federal Forms 990, Schedule B. In addition, the State of California requires any charitable organization that receives money or property in California, solicits donations in California, or is otherwise incorporated, formed or does business with the state to register annually with the Attorney General's Registry of Charitable Trusts. As part of this registration process, the organization must provide a copy of Form 990, including an unredacted copy of Schedule B, with the annual renewal filing (see CA Form RRF-1).

Both the Foundation and the Law Center separately challenged the California Attorney General's collection of IRS Form 990, Schedule B. They argued that the state's disclosure requirement impermissibly burdens their First Amendment right to free association by deterring individuals from making contributions. The California Attorney General argued that it uses the information solely to prevent charitable fraud, and the information is not to be made public except in very limited circumstances.

In separate cases, the US District Court for the Central District of California held that the Schedule B requirement violates the First Amendment as applied to the Foundation and the Law Center and permanently enjoined the California Attorney General from demanding the organizations' Form 990, Schedule B forms. For additional background on the Foundation's and the Law Center's cases, see Tax Alerts 2016-0774 and 2016-2060, respectively.

Ninth Circuit opinion

The Ninth Circuit reversed the district court judgments with respect to the Foundation and the Law Center, vacated the injunctions, and remanded for entry of judgment in favor of the California Attorney General.

The Ninth Circuit concluded that the California Schedule B requirement survives exacting scrutiny as applied to the Foundation and the Law Center because the requirement is substantially related to an important state interest in policing charitable fraud. The Ninth Circuit determined that the organizations failed to show that complying with the requirement imposed a significant First Amendment burden. In this respect, the Ninth Circuit found that the organizations failed to demonstrate that the requirement either meaningfully deterred contributions or, given the low risk of public disclosure, resulted in a reasonable probability of substantial harassment.


State donor disclosure laws have increasingly become a subject of debate throughout the country. The Second Circuit recently upheld New York's Schedule B disclosure requirement against a similar challenge by a nonprofit organization. (See Citizens United v. Schneiderman, No. 16-3310 (2d Cir. Feb. 15, 2018). Both cases held that requiring donor disclosure can pass First Amendment scrutiny, so long as the information is not publicly disclosed. The Ninth Circuit opinion rebuts the argument that donors may face substantial harassment, stating that the information is "collected solely for nonpublic use, and the risk of inadvertent public disclosure was slight."

A recent revenue procedure (Revenue Procedure 2018-38, see Tax Alert 2018-1454) provides that non-501(c)(3) exempt organizations are no longer required to report the names and addresses of contributors on Schedule B of Form 990 or 990-EZ returns, beginning with tax years ending on or after December 31, 2018. Thus, Revenue Procedure 2018-38 eliminates the requirement for reporting donor names and addresses on Schedule B for Section 501(c)(4) social welfare organizations and other qualifying tax-exempt entities. However, the revenue procedure specifically states that such organizations must collect and keep such information in their books and records and to make it available to the IRS upon request, when needed for tax administration.

Organizations should monitor any changes to the rules and regulations regarding donor disclosure within those states in which donations are solicited as states continue to seek such information at the same time that federal disclosure requirements are decreasing. Furthermore, regardless of whether donor names and addresses must be disclosed, every tax-exempt organization should continue to collect and keep such data for its books and records.

Please contact your Ernst & Young LLP professional for further information.


Contact Information
For additional information concerning this Alert, please contact:
Tax-Exempt Organizations Group
Terence Kennedy(216) 583-1504;
Mackenzie McNaughton(612) 371-6371;
Scott Tidwell(858) 535-4461;


Other Contacts
Exempt Organizations Tax Services Markets and Region Leadership
Mark Rountree, Americas Director, Americas Markets Leader and Health Sector Tax Leader – Dallas(214) 969-8607;
Bob Lammey, Northeast Region and Higher Education Sector Leader – Boston (617) 375-1433;
Bob Vuillemot, Central Region – Pittsburgh(412) 644-5313;
John Crawford, Central Region – Chicago(312) 879-3655;
Debra Heiskala, West Region – San Diego(858) 535-7355;
Joyce Hellums, Southwest Region – Austin(512) 473-3413;
Kathy Pitts, Southeast Region – Birmingham(205) 254-1608;

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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