Friday, February 25, 2022
Last summer's Supreme Court decision in Americans for Prosperity Foundation v. Bonta, striking down California's requirement that charities submit their Form 990 Schedule Bs to the state attorney general, has led to two recent legal developments of interest to nonprofits.
First, as reported by The NonProfit Times, New York has proposed (see pages 21-23) amending its rules relating to annual financial reports filed by charities required to register with the state to conform with the Supreme Court's decision. More specifically, the proposed rule would provide the following regarding submission of IRS forms:
(a) a copy of the complete IRS form 990, 990-EZ or 990-PF with all required schedules including a Schedule B, unless exempt from such filing pursuant to subsection (b), and
(b) public charities required to submit Schedule B to the IRS must file either (i) a redacted Schedule B with the Charities Bureau, without the names and street addresses of the donors but including the amounts of donations and the states from which those donations were received during the reporting period, or (ii) a statement of the gross amount of contributions received during the reporting period from individuals and entities residing or domiciled in New York (see section C(1)), and
(c) a copy of the complete IRS form 990-T, if applicable.
Comments were due by January 30th. On February 1st, at the ABA Tax Section Meeting, James Sheehan, the Chief of the Charities Bureau at the the New York State Department of Law, said only two comments were received by the deadline. According to Sheehan, one comment said essentially "about time," and the other comment did not apparently relate to the donor disclosure issue at the heart of the Supreme Court's decision.
Second, the U.S. District Court for the District of Connecticut preliminary enjoined several rules applicable to paid solicitors in Kissell v. Seagull, including one requiring paid solicitors to disclosure the names and addresses of donors to the state Department of Consumer Protection upon request (see paragraph 4 of the order, copied below). The court in its opinion supporting the order based the last holding in part on the AFPF decision. More specifically, the court stated:
The Commissioner cannot meaningfully distinguish Americans for Prosperity Foundation. To the contrary, as noted above, Kissel’s First Amendment claim is stronger than the First Amendment claim in Americans for Prosperity Foundation because it rests not only on the First Amendment right to association but also on the First Amendment right to free speech that is burdened by a content-based law that applies to him as a paid solicitor and that independently triggers strict scrutiny apart from any associational rights.
The court then concluded that the donor record-keeping and inspection requirement was not narrowly tailored to serve a compelling purpose. However, in the actual follow-up order, the court limited the injunction to the inspection requirement while not enjoining the record-keeping requirement:
4. The requirement in Conn. Gen. Stat. § 21a-190f(k) that paid solicitors must disclose the names and addresses of donors to DCP upon request violates the First Amendment in its current form, and Defendant is enjoined from seeking to inspect such information under that provision. Nothing in this judgment and order shall impact or obviate a paid solicitor’s obligation to maintain records about any of the information contemplated by § 21a-190f(k), including but not limited to the names and addresses of donors, if known to the solicitor, or to disclose to DCP upon request any of the information contemplated by that provision other than donor names and addresses.