Final Regulations Clarify Exempt Organization Filing Requirements

After waiting nearly eight months, exempt organizations finally have clarity on the reporting requirements of Form 990, Schedule B, Schedule of Contributors. Effective May 28, 2020, the Internal Revenue Service (IRS) published final regulation TD 9898 addressing donor reporting, as well as a few other items. The most anticipated change confirms that an exempt organization, other than a 501(c)(3) or Section 527 organization, is not required to report the names and addresses of donors on its annual information return. This Regulation confirms the IRS’s 2018 Revenue Procedure 2018-38, which was criticized for not following proper notice and comment procedure as established by the Administrative Procedure Act.

After issuing proposed Reg-102508-16 on September 10, 2019, the IRS received 8,387 comments on both sides of the issue. Some commenters thought the reduction of donor information reporting would afford organizations more of an opportunity to hide situations of private benefit or political activity. Others supported the Regulation on the premise that less reporting would be less of an administrative burden, allowing the organization to spend more time on their mission. Another concern pointed to the prevention of accidental disclosure of sensitive contributor information being reported to the IRS. The IRS determined that collecting this information annually from all organizations “is not necessary for the efficient administration of the internal revenue laws.”

While certain organizations are no longer required to provide the names and addresses of donors to the IRS, they are still expected to maintain this information in their files. The information must be available in the event of an IRS request or examination.

The final regulation also encompassed changes in other areas. The list of items required to be reported on annual information returns was expanded to include taxes imposed on certain lobbying and political expenditures as well as those related to excess benefit transactions. Second, the regulations amended IRC Section 1.6033-2(g)(1)(iii) to adjust the threshold, determining if certain exempt organizations must file an annual return, to $50,000 of gross receipts. Although Treasury and the IRS previously granted authority to adjust this threshold and have been utilizing the $50,000 amount, TD 9898 makes an official amendment. Exempt organizations under the specified threshold must still file Form 990-N., e-Postcard. Last, the final regulation clarified certain treatment and filing requirements of Section 527 organizations.

Although Regulation TD 9898 was effective May 28, 2020, organizations may apply these rules to returns filed as of September 10, 2019, which was the date of proposed regulations.

If you have any questions on the applicability of this regulation to your organization, please contact any of our exempt organization experts.