September 11, 2019 IRS issues proposed rules to end donor reporting requirement for non-501(c)(3) organizations, update other reporting requirements The IRS has issued proposed regulations (REG-102508-16) to clarify and update the reporting requirements applicable to exempt organizations. The new proposed regulations follow, and respond to, a recent court order that set aside, due to the IRS's failure to follow notice-and-comment procedures, Revenue Procedure 2018-38 (which included guidance ending donor reporting requirements for non-501(c)(3) organizations). Accordingly, the proposed regulations would generally incorporate the guidance previously issued in Revenue Procedure 2018-38, while also incorporating in the regulations under IRC Section 6033 certain other sub-regulatory guidance and statutory changes. Concurrently, the IRS issued Notice 2019-47 to provide penalty relief for non-501(c)(3) organizations exempt from tax under IRC Section 501(a) that did not report contributors' names and addresses in reliance on Revenue Procedure 2018-38 before it was set aside by the court. Background In July 2018, the IRS issued Revenue Procedure 2018-38, announcing that it was ending the requirement for IRC Section 501(a) tax-exempt organizations, other than IRC Section 501(c)(3) organizations and IRC Section 527 organizations, to report the names and addresses of their contributors on Schedule B of Form 990 or 990-EZ returns. The revised reporting requirements described in Revenue Procedure 2018-38 were stated to apply to returns for tax years ending on or after December 31, 2018. See Tax Alert 2018-1454. On July 30, 2019, the US District Court for the District of Montana released its decision in Bullock, et al. v. IRS, No. 4:18-cv-00103-BMM (D. Mont. Jul. 30, 2019), in which it determined that the IRS should have followed the notice and comment procedures of the Administrative Procedure Act in issuing the guidance in Revenue Procedure 2018-38. Accordingly, the court set aside the revenue procedure, holding that it was unlawful. Proposed regulations The proposed regulations would modify the existing regulations under IRC Section 6033 to generally adopt the guidance issued in Revenue Procedure 2018-38, as well as to update the regulations to reflect certain other sub-regulatory guidance and statutory changes. As such, the proposed regulations are intended to more accurately and comprehensively reflect current reporting requirements applicable to exempt organizations. The regulations are proposed to be effective as of the date of publication of final regulations adopting the rules. The IRS states that tax-exempt organizations may choose to apply those final regulations, once effective, to returns filed after the date of filing of the proposed regulations. Items required in annual information returns — reflecting current statutory requirements The proposed regulations would amend Treas. Reg. Section 1.6033-2(a)(2)(ii) to reflect two statutory reporting requirements, adding to the list of items required to be reported on an organization's annual information return the requirements under:
In addition, the proposed regulations would also incorporate the statutory reporting requirements in IRC Section 6033(h) for controlling organizations, IRC Section 6033(k) for sponsoring organizations and IRC Section 6033(l) for supporting organizations. Gross receipts filing threshold — reflecting sub-regulatory guidance The proposed regulations would amend Reg. Section 1.6033-2(g)(1)(iii) to reflect the $50,000 gross receipts filing threshold currently in effect under Revenue Procedure 2011-15 (rather than the $5,000 gross receipts threshold found in IRC Section 6033(a)(3)(A)(ii)). The proposed regulations would also reflect the application of the $50,000 threshold to organizations other than those listed in IRC Section 6033(a)(3)(C). Accordingly, the proposed regulations would specify that the gross receipts filing threshold for all organizations (other than private foundations and supporting organizations) formed in the US would be $50,000. Clarifying reporting requirements of IRC Section 527 organizations The proposed regulations would add Reg. Section 1.6033-2(a)(5) to state that IRC Section 527 organizations, subject to certain specified exceptions, generally must follow the reporting requirements under IRC Section 6033(a)(1) in the same manner as tax-exempt organizations. The proposed regulations would further state that IRC Section 527 organizations, like organizations described in IRC Section 501(c)(3), must continue to report the names and addresses of contributors on their annual Forms 990 or 990-EZ. Reporting contributors' names and addresses The proposed regulations would state that the requirement to report the names and addresses of substantial contributors would generally apply only to exempt organizations described in IRC Sections 501(c)(3) and 527. By reducing the number of organizations providing the names and addresses of contributors, the potential for inadvertent disclosure of names and addresses can further minimize the risk of exposing information not open to public inspection. However, tax-exempt organizations must still file Schedule L of Forms 990 or 990-EZ identifying transactions between the organization and interested persons (including substantial contributors) that may indicate possible risks of private benefit or inurement. Other exempt organizations would still be required to report the amounts of contributions from each substantial contributor and maintain the names and addresses of substantial contributors in their books and records should the IRS need this information on a case-by-case basis. Notice 2019-47 Notice 2019-47 provides penalty relief under IRC Section 6652(c) for organizations that relied on Revenue Procedure 2018-38 before it was set aside by the court in Bullock v. IRS. The Notice states that the IRS will not impose such penalties for non-501(c)(3) organizations exempt from tax under IRC Section 501(a) for failure to report the names and addresses of their contributors on the Schedule B of their Forms 990 or 990-EZ filed for a tax year ending on or after December 31, 2018, and on or before July 30, 2019. Exempt organizations may still be liable for penalties under IRC Section 6652(c) for failure to report any information required under IRC Section 6033(a) that is unrelated to the donor information described in Revenue Procedure 2018-38. Implications The Treasury Department's decision to issue proposed regulations that substantially mirror the substance of Revenue Procedure 2018-38 confirms its intention to help decrease compliance burdens and protect donor privacy for affected organizations. The Treasury has retained, however, the disclosure requirements for IRC Section 501(c)(3) organizations, as well as expanded these requirements to IRC Section 527 political organizations. The additional changes included in the proposed regulations largely serve to bring some of the related disclosure requirements and thresholds in line with similar statutory changes. This should help to further simplify and standardize the compliance process. Given the public discourse that has arisen after the initial publication of Revenue Procedure 2018-38, as well as the decision in Bullock, et al. v. IRS, the possibility exists that the final regulations will contain significant changes following the notice and comment period, which ends December 9, 2019. Finally, the penalty relief provided in Notice 2019-47 is automatic in nature and does not require any additional action or documentation on the part of the taxpayer to take advantage of it. Although the IRS has provided penalty relief for taxpayers, organizations affected by the proposed regulations should continue to keep records of contributor information, because the IRS can still require access to these names and addresses during an examination or enforcement proceeding. Please contact your EY Tax professional with any questions. ———————————————
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