Exempt Organizations: Do We File Schedule B or Not?

As the 2019 tax filing season commences, preparers and payers alike are still getting a handle on the latest particulars related to tax reform and other tax law modifications. One change of note for tax-exempt organizations is the new requirement to file Schedule B, Schedule of Contributors, together with their Form 990, Return of Organization Exempt from Tax. Prior to 2018, Schedule B was required to be filed by all tax-exempt organizations if donations in aggregate of $5,000 or more were received from an individual donor. The Schedule includes the name, address and gift amount of each donor that meets the reporting threshold. All information on an organization’s Form 990 is public knowledge, except for this donor information.

Starting with the 2018 Form 990, however, the IRS repealed donor disclosure rules for all organizations except 501(c)(3) and 527 political groups through Revenue Procedure 2018-38, which indicated that all organizations must accumulate and document donor information, but need not report the names and addresses of donors on their information return. Shortly after the Rev. Proc. was issued, Montana’s Department of Revenue filed a lawsuit against the IRS, claiming the Rev. Proc. didn’t follow proper notice and comment procedure, as required by the Administrative Procedure Act (APA). In March 2019, Montana was joined in the lawsuit by Gurbir Grewal, New Jersey’s Attorney General.

Both states claimed “information injury” because they gather donor information based on what an organization provides to the IRS on Schedule B. This includes the use of the information to identify political or controversial donors. The IRS responded that states are not legally entitled to this information. In July 2019, Judge Brian Morris of the Montana District Court sided with Montana and New Jersey’s arguments with respect to the fact that they, as well as others, were not given the opportunity to comment on Rev. Proc. 2018-38.

Following the court decision, the IRS issued on September 10, 2019 proposed Reg-102508-16, which included guidance on proposed changes to donor disclosure requirements and allowed for the APA notice and comment period through December 9, 2019. Although Reg-102508 is not yet final in the Federal Register, under section 7805(b)(7), taxpayers may choose to apply these rules to returns filed after September 10, 2019. The 2019 Schedule B instructions also point to the proposed regulations.

If an organization filed its 2018 Form 990 after July 30, 2019 but prior to September 10, 2019 and did not disclose donor information, it can refer to Notice 2019-47, which provides penalty relief to affected organizations who filed their returns relying on the Schedule B changes under Rev. Proc. 2018-38.

If you have any questions on the applicability of Schedule B to your organization, please contact any of our exempt organization experts. We’ll post further updates as they become available.