The U.S. Supreme Court has agreed to review two similar constitutional challenges to California’s law requiring that charitable organizations registered to fundraise in the state disclose the names and addresses of their major donors: Americans for Prosperity Foundation v. Becerra (No. 19-251) and Thomas More Law Center v. Becerra (No. 19-255).
Dozens of nonprofits nationwide have filed briefs opposing the California law, emphasizing concerns about the privacy of their donors and the risk of public disclosure of the organizations’ Schedule B donor information, which is typically filed on a confidential basis with the IRS as part of the otherwise public Form 990. The briefs represent diverse sectors of the nonprofit industry, such as public policy, research, and educational foundations; professional membership associations; and social welfare organizations.
The key issue in the case is whether California’s law has a chilling effect on First Amendment association rights, as donors to controversial causes may fear the fallout if their identity were to be made public. The petitioners argue that California has not shown a sufficient state interest to justify these First Amendment implications.
Federal and State Law Landscape
California requires charitable organizations to register with the California Registry of Charitable Trusts within 30 days of receiving charitable funds or property and to annually renew such registration. In filing the annual state report, charitable organizations must provide a copy of their IRS Form 990, “together with all attachments and schedules as applicable, in the same form as filed with the Internal Revenue Service.” This includes the confidential Schedule B of IRS Form 990, disclosing the names and addresses of major donors who contributed more than $5,000 or 2% of a nonprofit’s donations during the tax year (whichever is higher).
The IRS previously required most nonprofit tax-exempt organizations to file a completed Schedule B. But in May 2020, the IRS issued final regulations that changed this requirement for all tax-exempt organizations other than 501(c)(3) and 527 organizations, announcing that such non-501(c)(3) and non-527 organizations no longer need to report donor names and addresses on Schedule B. Although 501(c)(3) organizations must still file Schedule B with the IRS if their donors meet the thresholds for disclosure, federal law protects the confidentiality of Schedule B donor information and prohibits the IRS from disclosing donor information to the public or to federal agencies, except in limited circumstances. Therefore, even though other sections of a nonprofit’s Form 990 are subject to public disclosure, the IRS must keep donor information from Schedule B confidential.
Although California regulations specify that donor information filed with the state is not subject to public disclosure, many nonprofits worry about the disclosure risk for this confidential and federally protected information. This concern arises partially from the fact that California has inadvertently published confidential donor information on the Registry of Charitable Trusts website, and nonprofits fear that this information could be leaked, stolen, or otherwise made public in the future.
Arguments Before SCOTUS and Nonprofit Sector Interest
Over the past several years, the Americans for Prosperity Foundation and Thomas More Law Center cases have percolated through the California courts, eventually reaching the Ninth Circuit, which upheld the state regulation’s donor disclosure requirements. In January 2021, the U.S. Supreme Court agreed to consider the First Amendment challenge to the law and consolidated the cases for oral argument.
Several briefs underscore the need to maintain donors’ privacy, which they argue is imperative to the success of nonprofit organizations, whose donors often value anonymity, and the violation of which would cause detrimental harm to nonprofits and donors alike. Other briefs argue that California does not need such information to combat charitable fraud, implement tax administration, or serve any law-enforcement goal, and reiterate that the state’s interest in donor disclosure for nonprofits should not be viewed in the same way as donor disclosure in the electoral context. Many briefs express concerns about how the state will use donor information and safeguard it from the risk of public disclosure.
The cases have garnered national attention and are being closely watched to determine whether the Court will uphold California’s law or reverse the Ninth Circuit and enjoin the state from enforcing this requirement. Meanwhile, California’s law remains in effect, and charitable organizations must continue to provide the state with their Schedule B in order to maintain their registrations to fundraise in the state. The Supreme Court has yet to set a date for oral arguments in this case.