Monday, May 31, 2021

Hackney, Dark Money Darker? IRS Shutters Collection of Donor Data

Philip Hackney (Pittsburgh) has posted Dark Money Darker? IRS Shutters Collection of Donor Data, which will be published in the Florida Tax Review. Here is the abstract: 

The IRS ended a long-time practice of requiring most nonprofits to disclose substantial donor names and addresses on the nonprofit annual tax return. It is largely seen as a battle over campaign finance rather than tax enforcement. Two of the nonprofits involved, social welfare organizations and business leagues, are referred to as “dark money” organizations because they allow individuals to influence elections while maintaining donor anonymity. Many in the campaign finance community are concerned that this change means wealthy donors can avoid campaign finance laws and have no reason to fear being discovered. In this Article, I focus on whether the information is needed for the enforcement of the tax law and/or to support ancillary legal goals. I contend the IRS ought to collect this substantial donor information as it did for over 79 years. Though the collection of donor information may not be essential for groups such as social clubs, fraternities and sororities, and mutual ditch companies, the collection of this information non-publicly by the IRS is important in both enforcing tax-exempt requirements and in enforcing the tax law generally. Tax law prohibits the distribution of earnings from a nonprofit to those who control the organization. Substantial donors are classic suspects for seeking such improper receipts through their control. Thus, the information is key to IRS auditors. Considering the deficient budget of the IRS to ensure a properly enforced Code, the failure to collect that information puts the IRS in a disadvantaged position. While as a democratic matter, there may be some modest benefit from alleviating donors from the worry that the government will know about their political contributions, the harm to those who are not able to make use of these structures, the harm to those who are deprived of information regarding the biases associated with particular political activity, and the harm to the belief that the tax, campaign finance, and nonprofit law will be enforced equally upon all, is more significant. With these considerations in mind, the IRS and Treasury ought to rescind its most recent guidance on this matter. If not, Congress ought to require this information be disclosed by law.

Samuel D. Brunson

Federal – Executive, Publications – Articles | Permalink


I started reading the article and realized that the authors are using very imprecise language to define and describe their subject.

It would have been helpful if they had distinguished between: a)501(c)(3) public charities; and b) other tax-exempt entities when discussing "dark money" and how the IRS (and Congress, by statute) treat disclosure differences.

A footnote with reference to Table 24 of any recent IRS Data Book would have been helpful to the reader. A review of that one-page table would have assisted the authors to avoid the misstatement that the Treasury/IRS regulation affecting non-charitable tax-exempt entities affect "...most nonprofit tax-exempt organizations...".

Posted by: Michael L. Wyland | Jun 8, 2021 1:35:42 PM

Hi Michael - thanks for the note. Helpful to get that feedback. I really appreciate that. Phil

Posted by: Philip Hackney | Jun 9, 2021 1:59:51 PM

Post a comment