June 1, 2020 Final regulations end donor reporting requirement for non-501(c)(3) organizations and update other reporting requirements under IRC Section 6033 In final regulations (TD 9898), the IRS updates information reporting requirements under IRC Section 6033 that generally apply to tax-exempt organizations. Adopting, with minor changes, the underlying proposed regulations (REG-102508-16; see Tax Alert 2019-1607), the updates reflect statutory amendments and certain reporting relief for tax-exempt organizations required to file annual information on Form 990 or Form 990-EZ. Background The IRS issued the proposed regulations in September 2019 to clarify reporting requirements for tax-exempt organizations and to address a US district court decision (Bullock, et al. v. IRS, No. 4:18-cv-00103-BMM (D. Mont. Jul. 30, 2019)) setting aside guidance (Revenue Procedure 2018-38) that had ended donor-reporting requirements for non-501(c)(3) organizations. The court concluded that the IRS had not followed the notice and comment procedures of the Administrative Procedure Act (APA) in issuing the revenue procedure, making the guidance unlawful. The proposed regulations generally incorporated the guidance contained in Revenue Procedure 2018-38, in addition to incorporating other sub-regulatory guidance and statutory changes. The proposed regulations generated 8,387 written comments, and the IRS held a public hearing on February 7, 2020. After considering the comments, the IRS and Treasury finalized the proposed regulations largely unchanged. Proposed regulations In general, the proposed regulations:
Final regulations Items required in annual information returns No comments were submitted addressing the proposed amendment of Reg. Section 1.6033-2(a)(2)(ii) to reflect annual information required under two new provisions: (1) IRC Section 6033(b)(10), relating to taxes imposed on certain lobbying and political expenditures by organizations described in IRC Section 501(c)(3) and (2) IRC Section 6033(b)(11), relating to taxes imposed with respect to an organization, an organization manager or any disqualified person on any excess benefit transaction under IRC Section 4958. The IRS also received no comments on its proposal to amend the regulations to 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. The final regulations adopted these provisions from the proposed regulations without change. Gross receipts filing threshold Revenue Procedure 2015-11 increased the gross receipts filing threshold for information returns to $50,000 from the $5,000 threshold in IRC Section 6033(a)(3)(A)(ii). The proposed regulations proposed to incorporate this change by amending Reg. Section 1.6033-2(g)(1)(iii) to reflect the $50,000 gross receipts filing threshold and extend the threshold to all tax-exempt organizations, except private foundations and supporting organizations. While comments received supported the $50,000 threshold, one comment did recommend lowering the filing threshold to $25,000. The Treasury and IRS consider the $50,000 threshold to be a balance between resources and tax law compliance. Therefore, the final regulations adopted this provision from the proposed regulations without change. Clarifying the treatment of IRC Section 527 organizations The proposed regulations would generally have required (Reg. Section 1.6033-2(a)(5)) IRC Section 527 organizations, subject to certain exceptions, to: (1) follow the reporting requirements under IRC Section 6033(a)(1) in the same manner as tax-exempt organizations and (2) report the names and addresses of contributors on their annual Forms 990, as IRC Section 501(c)(3) organizations do. The IRS received no comments on these changes and the final regulations adopted these provisions from the proposed regulations without change. Reporting contributors' names and addresses IRC Section 6033 does not require the names and addresses of contributors to non-501(c)(3) organizations to be reported on annual information returns. The proposed regulations would have required only IRC Section 501(c)(3) and IRC Section 527 organizations to provide the names and addresses of substantial contributors. All tax-exempt organizations will 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. Most of the comments that the IRS received addressed the general requirements for reporting names and addresses of substantial contributors on Schedule B, filed with Form 990. Tax administration need for annual reporting of names and addresses of substantial contributors. According to the Preamble, the IRS considered and rejected comments opposing the proposed changes. Ultimately, the IRS and Treasury concluded "requiring all tax-exempt organizations to report the amounts of contributions from each substantial contributor on the Schedule B of the Forms 990 and 990-EZ, as well as requiring them to maintain the names and addresses of substantial contributors should the IRS need this information on a case-by-case basis, is sufficient for the efficient administration of the Code." Privacy and risk of disclosure. Addressing comments expressing concern about maintaining the privacy of contributors to tax-exempt organizations, the IRS emphasized that (1) tax return information must remain private under IRC Section 6103; (2) the IRS takes its duty for maintaining privacy seriously; and (3) eliminating the requirement to report names and addresses of substantial contributors to non-501(c)(3) organizations further reduces the risk of inadvertent disclosures. Compliance burden on affected tax-exempt organizations and associated IRS costs. Responding to assertions of the burden on taxpayers to include substantial donors' names and addresses and on the IRS to redact this information, the Preamble emphasized that the IRS does not believe there is a tax administration need for annually reporting name and address information. Accordingly, the IRS determined that it would be "valuable" to tax-exempt organizations to remove this compliance requirement. Applicability to organizations described in IRC Section 501(c)(3). The Preamble reaffirmed the IRS's decision to require IRC Section 501(c)(3) organizations to provide the names and addresses of substantial contributors. Campaign finance enforcement. Responding to concerns that not requiring the names and addresses of substantial donors to non-501(c)(3) organizations would lead to an increase in anonymous influence on US elections, the Preamble stressed that "Congress has not authorized the IRS to enforce campaign finance laws. Schedule B reflects the enforcement needs related to the Code, not the campaign finance laws." Impact on states. The IRS received comment letters from numerous state attorneys general (AGs), making two different arguments. One letter, from the AGs of 19 states and the District of Columbia, asserted that "no longer receiving Schedule B information from the IRS would require a reorientation of processes that would cost the states time and money." Another letter, from 11 AGs, stated that the states would not be adversely affected by the change because "they do not rely on the Schedule B data for enforcement efforts and can receive the information through targeted examinations." In the Preamble, the IRS reminds states that return information they receive under IRC Section 6104(c) may only be utilized for "administrating state laws relating to the solicitation or administration of charitable funds or charitable assets." The IRS notes that "the divergent comments from state attorneys general indicate that the desire to obtain such information, and the purpose for doing so, may differ from state to state. To the extent that any state determines that the burdens of collecting and maintaining such information are justified by its own needs, such a state is free to require reporting of such information to the state and to maintain the information at the state's own expense." Revenue Procedures 95-48 and 96-10 The IRS received five comments requesting that the filing exception in Revenue Procedure 96-10 (which lists a class of organizations affiliated with a church or a convention or association of churches that are not required to file annual information using Form 990) be incorporated into the final regulations or that the IRS refrain from obsoleting the revenue procedure. Although the final regulations do not incorporate the provisions of Revenue Procedure 96-10, the Preamble notes that Treasury and the IRS continue to study its applicability. Similarly, the final regulations do not incorporate the provisions of Revenue Procedure 95-48 (which added governmental units and affiliates of governmental units to the list of organizations that are not required to file annual information using Form 990). The IRS and Treasury "continue to consider whether the reporting relief in this revenue procedure should be updated." Implications The Treasury Department's and IRS's promulgation of final regulations that remain essentially unchanged from the proposed regulations reaffirms their stated goal of reducing administrative and compliance burdens, as well as reducing the risk of disclosure of donor information for certain tax-exempt organizations. Accordingly, organizations exempt under IRC Sections 501(c)(3) and 527 should report all contributor information required per the regulations, while other tax-exempt organizations affected by these regulations should maintain internal records of certain contributor information, as the IRS can still require access to these names and addresses during an examination or enforcement proceeding. Tax-exempt organizations should also keep detailed records of contribution data to comply with any state filing requirements, noting that some states may change their guidelines in response to these final regulations. Please contact your EY Tax professional with any questions. ——————————————— RELATED RESOURCES — For more information about EY's Exempt Organization Tax Services group, visit us here. ———————————————
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